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University of Technology, Sydney Marketing Plan: VW Lupo Marketing Plan Introduction of the VW Lupo in India University of Technology, Sydney Faculty of Business School of Management Prepared by: Prateek P. Chakravorty, 10091155 Fanny Febrian, 10103632 Simon Rehbach, 10085482 Werachai Rotjanaaree, 10110005 Tanim H. Khan, 10097499 as part of the requirements for “24746 Marketing: Concepts & Applications” Syndey, October 2003 Marketing: Concepts and Applications -1- University of Technology, Sydney Marketing Plan: VW Lupo TABLE OF CONTENTS TABLE OF CONTENTS ............................................................................................................ 2 1. EXECUTIVE SUMMARY ....................................................................................................... 5 2. INTRODUCTION .................................................................................................................. 6 3. SITUATION ANALYSIS ......................................................................................................... 7 3.1 Business Environment ...................................................................................................................... 7 Political Environment......................................................................................................................... 7 Economic Environment .................................................................................................................... 7 Socio-Cultural Environment ............................................................................................................. 8 Technological Environment and Infrastructural Base ................................................................... 9 Legal Environment ........................................................................................................................... 10 3.2 Market Analysis................................................................................................................................ 11 The Product Market .......................................................................................................................... 11 Market Forecast ................................................................................................................................. 11 Market Characteristics ...................................................................................................................... 11 Target Market in India ...................................................................................................................... 14 3.3 Competitor Analysis........................................................................................................................ 15 Maruti Udyog Limited (MUL) ......................................................................................................... 15 Hyundai Motor India ........................................................................................................................ 16 Tata Motor ......................................................................................................................................... 16 Other competitors ............................................................................................................................. 16 Other potential competitors ............................................................................................................ 17 Substitutes .......................................................................................................................................... 17 The likely actions by competitors ................................................................................................... 17 3.4 Organisation Assets and Skills ....................................................................................................... 17 Organisational Structure................................................................................................................... 17 Brand Reputation .............................................................................................................................. 18 Volkswagen Asia Pacific................................................................................................................... 18 Production .......................................................................................................................................... 18 Marketing Capabilities ...................................................................................................................... 19 Technical Capabilities ....................................................................................................................... 19 Human Resources and Training...................................................................................................... 20 Key Markets and Customers ........................................................................................................... 20 3.5 Market Five Forces Analysis .......................................................................................................... 21 Marketing: Concepts and Applications -2- University of Technology, Sydney Marketing Plan: VW Lupo Industry competitors ........................................................................................................................ 21 Threat of New Entrants ................................................................................................................... 21 Threat of Substitutes ......................................................................................................................... 21 Bargaining Power of Customers ..................................................................................................... 21 Bargaining Power of Suppliers ........................................................................................................ 21 3.6 Portfolio Analysis ............................................................................................................................ 22 3.6.1 Market Attractiveness.............................................................................................................. 22 3.6.2 Competitive Advantage .......................................................................................................... 23 3.6.3 Portfolio Analysis and Strategic Marketing Plans ............................................................... 23 4. SWOT ANALYSIS .................................................................................................................. 23 4.1 Summary of SWOT Analysis........................................................................................................ 24 4.2 Implications of SWOT Analysis.................................................................................................... 24 5. EVALUATION OF ALTERNATE MARKETING STRATEGIES ...................................... 25 5.1 Market Entry Strategies .................................................................................................................. 25 5.2 Generic Marketing Strategies ......................................................................................................... 25 5.3 Market Positioning .......................................................................................................................... 26 5.4 Marketing Mix Strategies ................................................................................................................ 26 Product ............................................................................................................................................... 26 Pricing ................................................................................................................................................. 26 Distribution ........................................................................................................................................ 27 Promotion .......................................................................................................................................... 27 5.5 Preferred Strategy ............................................................................................................................ 27 6. OBJECTIVES......................................................................................................................... 28 6.1 Organisation Mission and Corporate Strategy ............................................................................ 28 6.2 Company Product and Market Objectives in India.................................................................... 28 7. RECOMMENDED MARKETING STRATEGY .................................................................. 29 7.1 Target Markets and Market Positioning ....................................................................................... 29 7.2 Marketing Mix .................................................................................................................................. 29 7.2.1 Product and Service ................................................................................................................. 29 7.2.2 Place (Distribution) ................................................................................................................. 30 7.2.3 Price ........................................................................................................................................... 31 7.2.4 Promotion ................................................................................................................................. 32 8. ECONOMIC EVALUATIONS ............................................................................................. 33 8.1 Planning Assumptions .................................................................................................................... 33 Marketing: Concepts and Applications -3- University of Technology, Sydney Marketing Plan: VW Lupo Market sizes ........................................................................................................................................ 33 Market shares ..................................................................................................................................... 34 Prices ................................................................................................................................................... 34 Revenues ............................................................................................................................................. 34 Cost ..................................................................................................................................................... 34 Marketing Budget .............................................................................................................................. 34 8.2 Forecast Sales ................................................................................................................................... 35 Forecast Profit and Loss Statement................................................................................................ 35 Critical points ..................................................................................................................................... 36 8.3 Forecast Profitability / Break Even Analysis .............................................................................. 36 8.4 Sensitivity Analysis .......................................................................................................................... 37 9. IMPLEMENTATION AND CONTROL ............................................................................. 39 9.1 Formal Project Plan for Implementation..................................................................................... 39 9.2 Monitoring of Action Plan ............................................................................................................. 40 APPENDICES ........................................................................................................................... 41 Appendix 1 Currency Exchange Rates ..................................................................................... 41 Appendix 2 Political System in India ........................................................................................ 41 Appendix 3 Demographic Environment ................................................................................. 42 Appendix 4 Foreign Direct Investment ................................................................................... 42 Appendix 5 GDP and Real GDP growth ................................................................................ 43 Appendix 6 Development of Inflation in India ...................................................................... 44 Appendix 7 Exim Policy:........................................................................................................... 44 Appendix 8 Organisational Structure of the Volkswagen AG ............................................ 44 Appendix 9 Production Facilities Worldwide ........................................................................ 45 Appendix 10 Porter’s Five Forces .............................................................................................. 45 Appendix 11 Entry and Exit Barriers ......................................................................................... 46 Appendix 13 Market Attractiveness........................................................................................... 46 Appendix 14 Competitive Advantage........................................................................................ 47 Appendix 15 BCG Matrix ........................................................................................................... 48 Appendix 16 Portfolio Analysis and Strategic Market Plans.................................................. 48 BIBLIOGRAPHY ...................................................................................................................... 49 END NOTES ............................................................................................................................. 52 Marketing: Concepts and Applications -4- University of Technology, Sydney Marketing Plan: VW Lupo 1. EXECUTIVE SUMMARY This marketing plan evaluates the launch of the Volkswagen Lupo, a small passenger car in the Indian market. The Lupo car offers high comfort and technology usually known from bigger cars. First, the business environment in India is analysed where the Indian political, economical, social, technological and legal environment is scanned along with market and competitor analysis. The analysis shows India as a growing market with high sales potential. However there are three major competitors in the market; namely Maruti, Hyundai and Tata Motor along with other car companies which pose threats to Volkswagen. Other challenges in entering the Indian market would be disadvantages of high production cost, the late market entrance and the entry without a business partner (joint-venture). However, the organisational assets of Volkswagen, such as brand image and solid company fit are likely to offset some of the uncertainties associated with the entrance in the Indian market. The fact that a Volkswagen group subsidiary; Skoda, is already in the Indian market promises the possibility of sharing knowledge and experiences and the high technology support Volkswagen has achieved through its worldwide operations is an added advantage of the company. Summarising the overall strengths, weaknesses, opportunities and threats, the conclusion would be that Volkswagen’s situation is quite favourable in India. A corporate mission statement with product and marketing objectives has been formed. Different alternative marketing strategies have been evaluated and a preferred final marketing strategy is recommended. This strategy involves introduction of two different versions of the Lupo car particularly for the middle and high-income customer segment. Marketing and distribution strategy would include sponsoring events, making use of well-known celebrities in advertisement campaigns and using different types of media for the promotion along with creation of wide distribution network all over the country to promote and sell the car. Further forecasts of the economic environment, sales numbers and a sensitivity analysis is done to analyse the result of the marketing campaign and finally an action plan along with a way to monitor its implementation is proposed which summarises the major steps necessary to introduce the Lupo car in India. Marketing: Concepts and Applications -5- University of Technology, Sydney Marketing Plan: VW Lupo 2. INTRODUCTION Volkswagen is a German car company founded in 1937. Ever since, it has been one of the very well reputed international car brands and has its branches in many countries all over the globe. Good quality is almost synonymous to Volkswagen and customer satisfaction is one of the top priorities of the company. The company wants to expand its market and enter into different niches all over the world. India is one of the largest economies in the world with a population over one billion. Its strategic location gives access to the vast domestic and South Asian market. Its largely and rapidly growing consumer market constitutes a very attractive market for branded consumer goods. Besides its growing market; it is one of the largest sectors in the world spanning over almost all the manufacturing and related activities. Cheap, abundant yet skilful labour and a very good quality and reasonably priced raw material supply market are its characteristic features. The recent reforms in the Indian fiscal and monetary policies have been a welcome change and have made India a very investor friendly market for the foreign investors. The automobile industry, one of the core industries here has also undergone metamorphosis particularly in the last decade with the advent of new business and manufacturing practices in the light of liberalization and globalization. Owing to this dynamic and substantial market conditions, our company, the Volkswagen AG, has decided to capitalise on these opportunities oozing out of the Indian markets and position themselves in a relatively new potential market by launching itself in the commercial small car market segment through its model Lupo which would be specially targeting its marketing efforts towards the urban car buying segment. Marketing: Concepts and Applications -6- University of Technology, Sydney Marketing Plan: VW Lupo 3. SITUATION ANALYSIS 3.1 Business Environment Political Environment Australia, a union of 6 states, is a Sovereign, Secular, and Democratic Republic with a Parliamentary system of Government. More detailed information about the political system in India can be found in Appendix 2. The Indian National Congress Party had been reigning over the Indian political scene over the majority period since independence which happened on 15th August, 1947. However during the last decade there have been a number of changes in the parties ruling the government. During the period between1990-2002 there has been growing instability in both the Centre and in some of the states. Though the single largest and the ruling party since 1998 has been the Bhartiya Janata Party (BJP); it has not attained single majority. It came in power in coalition with other parties as a result of which there is constant threat to the stability and reliability of the existing government. Also India is infamous for its bureaucracy, corruption and too much paper work which is a fundamental characteristic of the Indian Government. Economic Environment Australia is a mixed economy composed of public and private sector investment. This kind of economy strikes a delicate balance of good business: profitability and social welfare. Since the 1980’s Australia has pursued microeconomic reform, having realised the importance of competition greater efficiency in various industries and a greater the flow of investment into the economy to ensure future prosperity. As the economy of India was stagnant since its independence, the new leaders felt the need to reform the Indian economic policies. From the 1950s both private and public sector were encouraged to invest in the automobile sector. In the 1970s things became to change as the control of the state government was reduced. However, change took time to germinate and the government policies gradually became less stringent. New firms were allowed to enter all segments and existing firms brought out new models. For 40 years the icons of mobile India were limited to a handful of cars and bikes. The 1980s saw a revision of the Indian auto policy and the 1990s witnessed the birth of choice for Indian auto buyers. Today the industry hums to the tune of customer. The market is now driven by a legislation that no longer puts a cap on the consumer’s power to choose. Marketing: Concepts and Applications -7- University of Technology, Sydney Marketing Plan: VW Lupo At the moment there are 13 car manufacturing companies in India and the industry has an investment of over US$ 12.5 billion and employing over 500,000 people directly and indirectly which means that a lot of people in India are now dependent on the automobile sector for their living (Chaturbedi). India’s economy in automobile started to take a new look in the early 1990s and this change has a positive impact on the overall economy of India and resulting in the growth of GDP. During the 1990s the GDP has increased 5.7% compared to that of 1980s and increase 6.1% compared to the last decade and from the 1998, the GDP growth is in an increasing trend (See Appendix 5) (Tradewatch). This positive trend of GDP growth implies that the introduction of the newly reformed automobile policy is contributing in a positive way to the overall GDP growth of the country. At the same time the inflation is almost constant since 1998, which is a favourable feature for the foreign manufacturers and will encourage them to invest in India (see Appendix 6, “Development of Inflation in India”) (Tradewatch). Socio-Cultural Environment Australia is a country best known for its long lasting tradition and rich cultural heritage. Society, values, family and relationships is placed above all. They play a vital part in determining the consumer and business behaviour. India is a secular country which accepts all religions and has a vast number of religionsHinduism being the single major religion of people all over India. Festivals, customs and ceremonies also play an important role in the lives of Indian people. The main festivals being Diwali, Dassera, Christmas, Ganesh Chaturthi, Id, Carnival, Baisakhi, Easter, Onam, Pongal and many others which are celebrated all over India. The period during festivals like Diwali and Daserra are considered auspicious by the Hindus and it is observed that many people buy luxury goods such as cars, houses and other durables during this time. Marketers must therefore implement their intensive marketing efforts more during these times to attract potential buyers. Popularity of films, music, dance and sports is another important characteristic of the Indian culture. Eminent film stars and sport personalities are greatly idolised by people especially the youth and they have quiet an influential impact on them. Marketers could use them in their promotional and advertising campaigns effectively. Another significant feature of the Indian culture is the presence of variety of languages. There are at present 18 official languages spoken in India with around 1652 dialects. Hindi is the official and main language understood by everybody. Even though India is the country with the largest Marketing: Concepts and Applications -8- University of Technology, Sydney Marketing Plan: VW Lupo number of English speaking people in the world, it is only 3% of the Indian Population that speaks English. Firms must take note of the various national and regional languages to effectively communicate and reach to its target audience. Education level and literacy level will directly impact on the consumer demand as it creates brand awareness and product education. Also it is a vital statistic that helps in formulating the promotional strategy on the target audience. In India over the years the literacy level has considerably improved from 18% in 1951 to 65% in 2001 which is a significant improvement. Some states like Kerala and Goa have 100% literacy rate. Another important criteria business firms that cater for specific customer segments is the structure of various age groups in India. At present (2003), the age composition is as follows. Up to 14 years - 32% 15-59 years - 60% 60 years and above - 8% Technological Environment and Infrastructural Base The Rudd Government has realised the importance of technology and has given it top most priority in the recent development plans. The automobile industry has also been given more importance than it was given before and the Indian Automobile market is gearing towards having international standards to meet the needs of the global automobile giants and becoming a global hub. Huge investments are made to remain competitive through cost advantage and product quality control. The government has increased its Research and Development fund for the automobile industry to above Rs. 1400 crores (approximately AUD 552 million) for eight years. All laboratories in India such as BHEL, have started developing cell technology as alternative fuel which will certainly boost up the auto industry. Also the Indian Automobile Component Industry has been making rapid strides towards achieving world class Quality Systems by imbibing ISO 9000 Quality Systems. Today, India exports engine and engine parts, electric parts, drive transmission and steering parts and breaking and suspension parts among others thus providing quality raw materials and manufacturing components base in the country itself which would otherwise had to be imported from other countries (Capexcity). It must also be noted that the Indian Government lays special emphasis on controlling environmental pollution and promoting safety standards. The government imposes tough emission norms that will induce refiners to invest over AUD 11 billion in the next eight years to reduce emission from vehicles. The automobile industries must keep in mind that it should not Marketing: Concepts and Applications -9- University of Technology, Sydney Marketing Plan: VW Lupo violate the environmental laws imposed by the government otherwise they would be heavily penalised (Capexcity). Information Technology also plays a crucial part in the automobile sector. Some players are working towards development of efficient production systems that control the entire production process with high precision and accuracy. India, in all her diversity, encompasses one of the largest highway and road network on the planet second only to America. In recent times the government of India laid great emphasis on the development of adequate road network in the country. The total length of roads in the country exceeds 3.01 million kilometres. The labyrinthine network consists of 34608 km of national highways, 128622 km of state highways and informal network running about 2737080 km (Manipur Online, 2001). The Ministry of State for The Road Transport & Highways has undertaken the task of developing National Highways in India and has entrusted National Highways Authority of India (NHAI) the task of implementing the most ambitious National Highways Development Project (NHDP) – comprising of the Golden Quadrilateral and North-South & East-West Corridors, NHAI is also responsible for development of highways connecting major ports. Also the Union government intends to develop rural roads in all the districts of the states. These projects may cost more than Rs 25,000 crores (nearly US $6 billion), and would have to be developed with the private sector's participation (Indiacore, Projectstoday). Apart from the strong industrial and infrastructural base in India, there exists a sophisticated financial and marketing sector as well. There is also a vast availability of skilled manpower and professional managers at competitive costs and India can boast of one of the largest pool of scientists, engineers, technicians and managers in the world. Legal Environment The auto policy of 2002 narrates that from now on India will focus not only on manufacturing cars, but also will extend its focus to export of those cars. The foreign direct investment (FDI) policy has been relaxed and the car makers will now require minimum of US$ 50 million investment for setting up a project in India as opposed to minimum mandatory investment of US$ 400 million at the beginning, which came down to US $ 250 million and later to US $ 100 million. Under new policy this amount has been fixed. The ultimate aim of this new auto policy 2002 is to instigate the manufacturer to produce small cars for both domestic and foreign consumption. This new policy also discourages the use of old cars to increase the demand of newly developed environmental friendly small cars and thus attract as much as foreign manufacturers as possible (Business Standard). Marketing: Concepts and Applications - 10 - University of Technology, Sydney Marketing Plan: VW Lupo There are also several limitations on importing of cars. They particularly attract high duties (see “Role of Tariffs and Regulation” in the following section 3.2) and have to comply with the Indian Export Import (EXIM ) policy (see Appendix 7 “Exim policy”). 3.2 Market Analysis The Product Market The VW Lupo is classified under the small car segment in the Indian market. The Indian small passenger car market is in between growth and maturity stage of the product life cycle. The most popular small cars in India are the Maruti 800, Tata Indica and Hyundai Santro. The market size of this segment has increased from 572,423 units in 2000 to 634,484 unit in 2002 (Maruti and IPO). At present, the market leader in this segment is the Maruti 800 with 28% market share. Small cars are popular in the Indian automotive market because of its convenience to drive and park in Indian traffic conditions. Other reason for their popularity is that they are more affordable and economic in terms of the cost of ownership (Maruti and IPO). Market Forecast After the removal of investment and trade barriers in 1991, the Indian economy has vastly grown. A survey conducted by Euromonitor shows that there is a large market for branded consumer goods and personal vehicles in India. The growth in the market of Indian consumer goods market shows a significant rise in income level, which is about 9.6% a year and reflects the change in the lifestyle and preferences of large segments of Indian population (Euromonitor). The Society of Indian Automobile Manufactures (SIAM) sales data shows that from January to June 2003 the number of cars sold in India rose by about 30.5% compared to the same period in the last year. This sale was boosted by a huge demand for small cars. 80% of the sales came from the small car segment. These increases are likely to continue as India becomes more and more mobile through improved infrastructure and roads built by the Indian government. It is for these reasons that the demand for small cars in Indian is expected to increase even more in the future (Yahoo India News). Market Characteristics Development and Trends for the Product India is a developing country with a huge market potential. Currently, only six out of every thousand Indians own cars, compared to nearly 500 in developed economies. However, because of the rising income and population in India, analysts predict that this number will grow 10% Marketing: Concepts and Applications - 11 - University of Technology, Sydney Marketing Plan: VW Lupo annually over the next decade (Indiacar). Moreover, David Friedman, managing director of Ford India Ltd, said that "the car market (in India) is gradually shifting upwards (to more expensive models)". According to industry data, in India nearly 600,000 new cars were sold in 2001/02 out of which small cars accounted for 51%, rising from 49% in the previous year and 31% three years ago. This was caused by provision of cheaper loans and jazzy new models of small cars. As a result, it has increased the prospects of India as one of the world's top potential markets for automotive (Indiacar). Distribution Channel The distribution channels for automobiles in India are similar to the ones in Australia. The system is characterised by selling their product through establishing or using showrooms. However, in small cities and the rural area, the common strategy for foreign automotive manufacturers is to sell their products by forming a joint venture with local car dealers (Australian Department of Foreign Affair and Trade). Car manufacturers will establish their own showrooms in India to establish their distribution channels. The selection of the location will play a very important role here. The car manufacturers have their sales head quarter and service stations in the centres of the major cities, to reach to their potential customers. Fast introduction and adoption of new services and products of the company will have better prospects as there is a shorter distribution channel. Price and Pricing Practices The acceptance of products in India is based primarily on their price and quality, preference for cheaper products. Indian market is highly price sensitive. Therefore the automotive manufacturer has to setup a realistic selling price which would be reasonable and competitive. The manufacturers usually supply the product to their agents/ distributors at a fixed price. However in order to compete with others, distributors usually try to sell the products with discounted prices to the customers sacrificing on their commission, but increasing profit through more sales. (Euromonitor). Industry Practices An understanding of Indian business and social practices is of great importance in order to establish and maintain healthy and successful business relationships in India. Joint venture companies are the most preferred form of corporate entities for investment in India. There are no separate laws for joint ventures in India. A company iwith even 100% foreign equity is treated Marketing: Concepts and Applications - 12 - University of Technology, Sydney Marketing Plan: VW Lupo the same as domestic company in India. This is a major attraction for foreign firms. Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The potential liability of a parent company is also greater in the case of a branch office. Despite of its promising potential, there is no denying that India is still considered a challenging business environment for foreign company. (Australian Department of Foreign Affair and Trade). Stage of Product Life Cycle in India The small car is not a new product in Indian Market. It is in between the growth and maturity stage of the product life cycle in India. The first small car was introduced by Maruti in 1983 (Magindia). Although it has been launched a long time ago, sales in India are still growing due to the introduction of new technology and the new design of small cars. Role of Tariffs and Regulation The price of automobiles in India is strongly influenced by the tariff. The Indian government has set up the main tariff for automotive industry in India as: Completely Builts Unit Semi Knocked Down Kits Completely Knocked Down Kits Components 60% 35% 35% 30% (Trade Partners UK) If the Indian Government decreases the tariff for automobiles in India, the price of automobiles will become lower. For example, in 2001 the government has cut the excise tax to 32 per cent from 40 percent. This allowed carmakers in India to decrease prices by around five percent (Indiacar). The Indian government planned to adapt and comply with the international ECE regulation about safety and emissions for automotive industry because it has developed vastly and become more global. Therefore new cars produced or cars imported to India has to pass the ECE regulation. In practice this plan will follow the European approach to adopt ECE regulation but with a national framework. The first phase of this plan was implemented in Indian Automotive industry on April 2003 (Trade Partners UK). Marketing: Concepts and Applications - 13 - University of Technology, Sydney Marketing Plan: VW Lupo Target Market in India Market Segmentation There is a wide market for automobiles in India, due to the huge number of people as potential customers and the developing economy. The Indian market reflects considerable diversities in income levels and lifestyles (Euromonitor). This is mainly influenced by people’s annual household incomes and the place where they live. The market is highly competitive, particularly in the big cities. They form an attractive centre for marketing consumer products. However, in rural areas, where over 70% of Indians live, dramatic changes are taking place in the consumer market. The rural market has in fact outpaced India’s urban market in demand for durable and nondurable items (Euromonitor) but still the demand for luxury goods and cars is still less as compared to cities because of lower standard of living and different occupation structure agriculture still being the main occupation. Potential Target Market Segment Basically the target market for Volkswagen Lupo are the middle class and high income groups who have a monthly revenue between US$ 2000 until US$ 4000. This consumer group estimates between 250-300 million people (Asia Times). Targeting particularly to young professionals and working women (between the age of 23 and 35) in cities would be highly profitable because they are the group who spend more on luxury goods. As a result, there will be a growing demand for our product which are designed for comfort and convenience and complements their lifestyles. Consumer Buyer Characteristic and Purchase Behaviour The economic conditions in India have made price a very important factor for Indian consumers. Although they also look for the quality of products, they tend to buy a cheaper product. In general they are more focused on daily necessities before considering secondary and tertiary needs. However, according to National Council of Applied Economic Research (NCAER) there is change in the purchasing behaviour for middle and upper income class. This class are more likely to buy branded luxury goods than regular brand, because they feel more confident and comfortable using them (The Hindu Business Line). There is also a changing trend in consumer buying behaviour for cars. In general, Indian people would usually buy one car and keep it for about 6 -7 years till the car is in running condition. However, nowadays, some people tend to switch cars more quickly due to the variety of adequate cars, models and prices and brand awareness in the new generation. Marketing: Concepts and Applications - 14 - University of Technology, Sydney Marketing Plan: VW Lupo The potential market constitutes of around 300 million people representing the middle income group of people in India, having an income between US$ 2000 until US$ 4000. The number of people in this group is expected to grow up to 445 million by 2006. Economists say that the annual income in Asia of about US$ 3000 is the take off point for car purchases (Asia Times). According to economic analysts, the changes in Indian purchasing behaviour is caused by a large amount of new products, booming credit finance, the sudden reduction of traditional saving options and sharp increase in service sector. There has also been a change in typical Indian consumer’s attitude and today “Austerity is no longer considered a virtue and debt is not a taboo anymore in typical middle-class Indian Family”. Furthermore, many Indians are moving away from functional life to a lifestyle of fulfilment (Asia Times). This is especially observed in large metropolitan cities such as Mumbai, Delhi, Calcutta and Chennai, due to the improvement in quality of living and income in these areas (Euromonitor). 3.3 Competitor Analysis The Indian automotive market consists of 15 manufacturers; five are local and the others are international. However, three companies are major players in the market, namely Maruti Udyog Limited, Hyundai Motor India and Tata Motor. Source: Maruti Udyog Ltd. Maruti Udyog Limited (MUL) Maruti Udyog Ltd was established in 1981 by the Indian government with the cooperation of Suzuki Motor Company and converted to be a private company in 1992 due to an increase in Suzuki’s equity stake to 50% (Maruti IPO, p.3, 2003). Maruti, today, is the largest Indian passenger car manufacturer with the capacity to produce 350000 cars per annum and able to increase to 500000 cars with the existing facilities (Maruti IPO, p.3, 2003). This results in the competitive advantage of economies of scales and, as a consequence, brings Maruti to be the market leader having market share of 57.1%. Maruti’s competitive advantages are Marketing: Concepts and Applications - 15 - University of Technology, Sydney Marketing Plan: VW Lupo Cost leader due to economies of scale Largest number of service centres and dealers Strong support by Suzuki Motor Customer brand loyalty Hyundai Motor India Hyundai Motor India is a whole owned subsidiary of the largest Korea automobile manufacturer, Hyundai Motor. It has just entered the Indian market since 1996 but, with the excellent R&D and market strategies, Hyundai Motor India now stands at the second best position in Indian market with the market share of 16.1% (Maruti IPO, p.6, 2003). Its factory has a capacity to manufacture 120,000 per annum (indiacar.net, 2002), which is the third largest number in Indian market. However, it exports approximately half of all cars produced. Hyundai’s competitive advantages are High technology and excellent research development Economies of scale Strong support by its parent company Tata Motor Tata Motor is one of companies expanded by the biggest and most dominant Indian company, Tata group. It has been well known as the best Indian commercial vehicle manufacturer (indiacar.net, 2002) but, for the passenger car market, it was not very successful. However, after launching the latest well-developed model, Indica, Tata Motor has become more popular in the passenger car market, leading to 11.5% of market share (Maruti IPO, p.3, 2003). Tata’s competitive advantages and strategies are A number of distributors due to the existing service centres and dealers for commercial vehicles Economies of scale (160,000 cars per annum) due to the capacity of factory producing commercial vehicles Other competitors Fiat Ford and Daewoo also have a model launched to the small car segment (indiacar.com, 2003). However, their parent companies have not fully invested in this market. As a result, these companies are not much successful and have just a small number of market shares. Marketing: Concepts and Applications - 16 - University of Technology, Sydney Marketing Plan: VW Lupo Other potential competitors Because the small car segment in India is very attractive, there is a possibility that the big names will join this big cake. Honda, Toyota and Mitsubishi, which are on a list of this, have just entered in the Indian market for few years and have not yet entered the small car segment but are likely to launch their models in the near future. Substitutes Passenger cars do not have direct substitutes. However, people may prefer using public transportation in cities such as taxis, autorickshaws, buses or trains because they are cheap and requires no investment to buy. Still, they are not as convenient and reliable as cars. Some people may also choose buying a commercial vehicle such as small truck or van called tempos, which may also serve as useful vehicles for carrying goods for trade purposes rather than for plain domestic and travelling utilities. Competitor’s Reaction on Volkswagen’s Entry in Indian Market If VW enters the Indian market, the competitors mentioned above may have different reactions. For Maruti, its target market is low-and-middle income people who slightly different from VW’s target market. Therefore, it may not have significant action. In contrast, Hyundai and Tata are targeting new age and middle-and-high income people, similar to Volkswagen’s target market. Therefore, they may significantly adjust their strategies by reducing the price or increasing their service quality to rise up their customer expectations. However, they still cannot beat the price of Maruti because they have higher cost and different positioning. 3.4 Organisation Assets and Skills Organisational Structure The Volkswagen (VW) group today consists of two brand groups, the VW brand group and the Audi brand group. The Audi brand group comprises the Audi, SEAT and Lamborghini brands, emphasising sporty values. The VW brand group is made up of VW, Skoda, Bentley and Bugatti, focusing more on classical values. Commercial vehicles are managed by the VW commercial vehicle group (see Appendix 8 “ organisational structure of the Volkswagen AG”). The worldwide operations are taken out by four regional branches, Volkswagen Europe, Volkswagen North America, Volkswagen South America / South Africa and Volkswagen Asia Pacific. Volkswagen cars are sold to more than 150 countries in the world (Volkswagen AG, 2003). Marketing: Concepts and Applications - 17 - University of Technology, Sydney Marketing Plan: VW Lupo Brand Reputation Volkswagen was founded 1937 in Germany and soon became famous as the creator of the worldwide well-known Beetle car. “Volkswagen“ is German and can be translated as “people’s car”, indicating the traditional background of the company Germany. It maintains a world wide brand reputation. But even though VW maintains a worldwide brand reputation, this brand awareness is almost not existent within Indian customers. VW will have to build up this brand awareness in the Indian market to be able to compete with the local car manufacturers. Volkswagen Asia Pacific The Volkswagen group has already entered the Indian market through its subsidiary Skoda. This has been a relatively recent move, but will still enable Volkswagen to share experiences and knowledge about the Indian market territory. However, Skoda has not yet completely proven its market position and only launched a small number of cars, achieving low market shares. The Volkswagen brand itself is nonetheless not yet present in India except for the recently planned production site (see “Production” in this section). Volkswagen has entered the Chinese market in 1984 and been very successful in it since then. They managed to enter different joint ventures with Chinese firms. Volkswagen today accounts for more than 50% of the market share in China and vehicles used by government institutions are almost exclusively produced by Volkswagen (Wattanavitukul, 2002). Both Volkswagen India and Volkswagen China are managed by the regional management of Volkswagen Asia-Pacific. The Chinese Market is just as the Indian market very different from a single market such as Europe. They feature a quite different business culture and significant language barriers for western companies like Volkswagen. Volkswagen’s success to compete under these conditions in China has proven their ability to cope with such circumstances, but the Indian market will still be a challenge for them. For example, many other automobile companies such as Mercedes-Benz, Toyota, Peugeot and GM have failed under the market conditions in China. It should also be noted that unlike in China, Volkswagen entered the Indian market without a joint venture partner. Relations to the public and the government are more difficult to maintain without an Indian joint-venture partner. VW will have to build these relations up by itself, being considered a foreign investor. Production Volkswagen has a worldwide network of production plants, counting 44 production facilities throughout the whole world (see Appendix 9 “production facilities worldwide”). More than 320,000 employees are involved in the production of more than 21,000 cars per day worldwide. Marketing: Concepts and Applications - 18 - University of Technology, Sydney Marketing Plan: VW Lupo There is a production site recently set up in Maharashtra, close to the Skoda production site. Volkswagen group is planning to make the production site in India a sourcing centrepoint for Asian operations to cater demand from other South Asian Countries such as Nepal, Sri Lanka, Bangladesh and Pakistan (Kuber, 2003). Marketing Capabilities "Volkswagen heads towards emotionalisation, Volkswagen is going into niches, and there will be no area, which is a no go for Volkswagen" (Dr. Robert Buechelhofer, Marketing & Sales Volkswagen Group) (Volkswagen AG, 2003). “It is the goal of the Group to offer attractive, safe and environmentally friendly vehicles which are competitive on an increasingly tough market and which set world standards in their respective classes.” (Volkswagen AG, 2003) Volkswagen is constantly developing new customer approaches, eager to break new grounds in marketing. A car buyer in Germany can for example now visit the Autostadt located at the Volkswagen headquarters in Wolfsburg, Germany. Autostadt is an A$ 500 million automobile world centre, featuring a transparent plant which demonstrates the high-tech production facilities of Volkswagen. Located about one hour away from Berlin, about 1.5 million people per year visit the Autostadt. In Dresden, Germany, another transparent factory is placed in the middle of the town, so that the creation of cars has become part of urban life (Autostadt, 2003). These unconventional new Marketing approaches demonstrate Volkswagen’s flexibility and marketing power. Technical Capabilities Volkswagen has a significant advantage to be able to rely on these technological capabilities. The Indian subsidiary will therefore have a massive pool of knowledge which they will make use of. Special skills of the VW group are its TDI diesel engines and fuel efficiency. TDI stands for turbo direct injection – this specially developed technology allows the construction of cars with diesel engines which are offering faster acceleration than regular diesel engines. Fuel efficiency is one of Volkswagens most advanced techniques – the company not only launched the world’s first 3L car (which means 3 litres of fuel consumption per 100 km) to mass production but has already carried on research and presented a prototype of a 1L car, which is consuming less than 1 litre of fuel per 100 km. Low fuel consumption will be an attractive feature to Indian customers as it lowers the cost of ownership of the car significantly. The 3L car is a version of the Lupo model with a special 3L Diesel engine. Marketing: Concepts and Applications - 19 - University of Technology, Sydney Marketing Plan: VW Lupo Volkswagen cars are also known for its sophisticated design. The aesthetics of a car are a key aspect of new developments. Cars such as the Audi TT, the New Beetle and others have circumstantiated the design competencies of the VW group. Being a prestigious brand, sophisticated car design is an important feature for Indian customers that distinguish Volkswagen cars from other brands. Human Resources and Training Volkswagen considers its employees as their capital and puts a lot of effort in modern employment relations. Volkswagen has established so-called “job families” which focuses on the skills of their employees (Volkwagen, 2003). Continued education is provided as well as a pension fund. In order to maintain the good reputation of the Volkswagen brand, the company is interested in being known for good human resource practices. These practices provide Volkswagen with a competitive advantage over other firms. Many companies that have production facilities in the Asian Pacific Region focus on low cost production and rather exploit their employees than considering them as an important asset. Being a company that is worth working for , makes Volkswagen attractive for its potential employees. However, it will also mean higher production cost than other companies in the industry. Key Markets and Customers In Volkswagen’s home territory, Western Europe, every 5th car is a Volkswagen. The market share highest market share among Western Europe is achieved in Germany at around 30%. The European car market can therefore be considered a key market. This is important on the background of the high initial investment costs to enter the market in India. Besides the European car market, the Asian Pacific region already is of great importance for Volkswagen’s global success. The dominant market position in China with more than 50% market share makes the Asia/Pacific region (market share 6.4% in 2002) one of Volkswagen’s most important markets in present and future. Volkswagen is not only attracting customers in its traditional small-car segment but also numerous new market segments such as four off-road vehicles, sports cars and luxury cars. It is constantly refining its products with the goal of offering high technology, safe and design cars in many different market segments. This variety of car models is a good starting point for the Indian operations. For the start, the Lupo car has been selected to be introduced. Later on, Volkswagen will have flexibility to extend the product range to other car models depending on the developments in the market. Marketing: Concepts and Applications - 20 - University of Technology, Sydney Marketing Plan: VW Lupo 3.5 Market Five Forces Analysis Michael Porter’s Five Forces model (see Appendix 1 “Porter’s Five Forces”) analyses the intensity of forces that have an impact on the operations of a business (Kotler, 2000). The five forces that Porter has identified are: Industry competitors Competition in the automobile industry is extremely high. There are numerous competitors penetrating the automobile market such as Maruti Udyog Limited, Hyundai Motor India and Tata Motor (more information in section 3.3 “Competitor Analysis”). Volkswagen needs to create brand awareness and implement marketing strategies and tactics to attract customers to achieve a significant distinction from its competitors. Threat of New Entrants In the automotive sector, it is hard to enter or exit the market. The investments needed to operate the business include usually large amounts of money and special equipment that cannot be easily sold if a company decides to exit the market. Because of this, the automobile industry has high entry and exit barriers (see Appendix 11 “Entry and Exit Barriers”). However, it has to be considered that India particularly attracts new market entrants because of the growing market demand and the amount of potential customers. Threat of Substitutes Besides the other brand of cars, Passenger cars do not have direct substitutes. However, as mentioned in section 3.3 “Competitor Analysis”, some people may choose to use public transportation such as taxis, autorickshaws, buses or trains because they do not require an initial investment and are more affordable. Still, they are not as convenient as using a car. Bargaining Power of Customers To the extent of price, customers’ bargaining power is relatively high in Indian market due to existence of established competitors in the market that will directly compete with Volkswagen (more information in section 3.3 “Competitor Analysis”). More competitors in the market result in more buying options for potential customer, increasing their bargaining power. Bargaining Power of Suppliers The bargaining power of suppliers is relatively low due to the limited number of car companies in the market and highly specialised products. In the automobile industry, suppliers often produce Marketing: Concepts and Applications - 21 - University of Technology, Sydney Marketing Plan: VW Lupo exact fitting parts that are needed for the production of a particular car type. It would require huge investments for them to change over to produce a different product for another car manufacturer. On the other hand, car manufacturers cannot easily switch over to a different supplier as well. Therefore the bargaining power of suppliers is therefore only moderate to neutral. 3.6 Portfolio Analysis To create a strategic marketing plan, we need to analyse the market attractiveness and Volkswagen’s competitive advantage in Indian market. The results of this evaluation of market attractiveness and competitive advantage are depicted in the BCG matrix (see Appendix 16 “BCG Matrix”). 3.6.1 Market Attractiveness To analyse market attractiveness, we should look at three different aspects: Market forces With the emphasis on the increasing of economic condition, the market size and growth of automotive industry is increasing gradually. Although the customer buying power is relatively low now, there will be a high potential in the future. However, the customer loyalty in India is low because there are numerous competitors the automobile markets and the customers have many options if they feel not satisfied with particular offers. Competitive intensity The competition in the market is quite high due to the existence of number of competitors in the Indian market and the price rivalry . The entry and exit in the automotive market is difficult because of high capital investment required and number of formalities that has to be undergone. Although there are no direct substitutes for cars, people may prefer to use public transportation due to the economic reasons. Hence, these substitutes can also cause certain levels of threat to the company. Market access Customers in India are familiar with the brand of the cars available in the markets because of the availability of information and awareness through major media such as newspapers, commercial TV and street advertisement. Marketing campaigns trigger the awareness and demand further more. Moreover, availability of agents, showrooms, service centres and dealers make it easy for consumers to obtain the product and related information easily. Marketing: Concepts and Applications - 22 - University of Technology, Sydney Marketing Plan: VW Lupo In Appendix 13, the market attractiveness is indexed based on the previous analysis. The results indicate that India’s automotive market is an attractive market for us. 3.6.2 Competitive Advantage By evaluating our company’s competitive advantage compared with that of competitors, we are capable of finding the strength and weakness of our company related to the automotive industry in India. It can be viewed from three different standpoints- differentiation advantage, cost advantage and marketing advantage. The score in each dimension implies that Volkswagen, as a new entrant, has a high differentiation advantage. However, the cost advantage and marketing advantage for Volkswagen are both relatively low due to Volkswagen’s late market entrance. Therefore, it is be understandable that Volkswagen’s overall competitive advantage in the business is relatively low (see Appendix 14 “Competitive Advantage”). 3.6.3 Portfolio Analysis and Strategic Marketing Plans The portfolio analysis and strategic marketing plans can be established based on market attractiveness and competitive advantage analysis that we mentioned above. From the chart (see Appendix 16 “Portfolio Analysis and Strategic Marketing Plans”), it can be seen that Volkswagen can use an offensive strategy to grow market share and increase brand awareness. Although our company’s market share will be low in the beginning, we are confident that it can be significantly increased. For these reasons, the business has been classified as a “question mark” (see Appendix 15 “BCG Matrix”). As a question mark, our business has a low market share in a high growth market. It will require high investments and resources to grow, but it is unknown whether it will succeed and become profitable. 4. SWOT ANALYSIS The SWOT Analysis summarises the findings of the previous section three and categorise them according to their classification as organisational strengths and weaknesses – that are, advantages and disadvantages that can be attributed to Volkswagen itself – and opportunities and threats that are chances and problems that can arise in the environment of the organisation. Marketing: Concepts and Applications - 23 - University of Technology, Sydney Marketing Plan: VW Lupo 4.1 Summary of SWOT Analysis STRENGTHS WEAKNESSES International Reputation. High Technology support for operation. Good Service. Good Human Resources practices. Central location of production site. Existing subsidiary in India. Volkswagen entered into Australian market later than others. Different business culture in India. Lack of customer brand awareness now. No partner in Asia. Few distributors. Existing subsidiary not very strong. OPPORTUNITIES THREATS Sufficient financial backup. Friendly marketing environment. High market potential and growth. New infrastructure. Cheap workforces. Strong domestic competitors. Brand Loyalty. Price competition from other companies. New market entrants Limited consumer buying power. Domestic Auto-Industry protection Policy. 4.2 Implications of SWOT Analysis The evaluation of advantages and disadvantages shows up a significant number of risks. The entrant in a new foreign market poses a significant challenge for a company. High entry and exit barriers promise high, yet risky return (see Appendix “Entry and Exit Barriers”). It are these high returns and promising market features, namely market size and growth, that rectify the associated effort that is needed for this venture. If the threats are handled and the weaknesses overcome, Volkswagen will be proven even more successful. As a large, multi-national company, Volkswagen has significant financial power and know-how that can be deployed for the undertaking. The friendly marketing environment in India is a chance to offset the current lack of brand awareness. The demographic features of India and the recent and forecasted future developments considering consumer buying power promise a sufficiently large target costumer group. Therefore many of the threats and weaknesses seem to be at least partially offset by the companies’ strengths and the opportunities found. Overall, the balanced analysis of strengths, weaknesses, opportunities and threats can be characterised as rather favourable, yet not very favourable. Marketing: Concepts and Applications - 24 - University of Technology, Sydney Marketing Plan: VW Lupo 5. EVALUATION OF ALTERNATE MARKETING STRATEGIES After evaluation of the external opportunities and threats the business environment of the firm offers and on the basis of its strengths and weaknesses, affirm must structure its alternative marketing strategy options and then finally select the most suitable and feasible strategy. The alternative marketing strategies must be formulated in the areas of market entry, generic marketing strategy and market segmenting and positioning. 5.1 Market Entry Strategies Volkswagen has already set up a manufacturing plant in India in the state of Maharashtra. Therefore issues like investment options, exporting and formation of alliances and joint ventures do not arise. However, to enter the market effectively, the company needs to have a strong network of suppliers and distributors to promote and sell the product all over the country. The company can enter the market by setting up Volkswagen showrooms all over the country or by use of agents and car dealers or through opening franchise outlets in the country or through automobile shows. Setting up showrooms and franchise outlets all over the country could be very expensive and time consuming. Automobile shows have limited scope and limited coverage and cannot be the only way to enter the market and can be used more as a promotional tool. Use of strong car dealers and agents would have the maximum reach and comparatively less expensive process and could be one of the best mediums to enter the market. The issue of establishing showrooms and a dealer network will be discussed in further detail in section 7.2.2 “Place / Distribution”. 5.2 Generic Marketing Strategies Porter emphasises on cost leadership, product differentiation and focus as it’s main generic marketing strategies. Cost leadership aims at profit maximisation through price competitiveness which is gained through low cost of per unit production. This generic strategy calls for being the low cost producer in an industry for a given level of quality. This strategy is not best suited for Volkswagen since quality emphasis is one of the prime criteria for the company. Differentiation strategy aims at developing some unique qualities to the product that the customers prefer and which gives it a preferential advantage over the competitor’s products. Focus strategy aims at a narrow segment within which the company wishes to achieve cost leadership or differentiation. The focus is on a very limited or niche market and the scope is very Marketing: Concepts and Applications - 25 - University of Technology, Sydney Marketing Plan: VW Lupo limited. Volkswagen aims for a wider segment and therefore differentiation strategy is the best suited generic strategy for the company where at a competitive price it would aim at enhancing customer’s perceived value about the product and the company. 5.3 Market Positioning In order to formulate an effective marketing strategy, it is necessary to identify the potential target markets the company must cater to. Once the most profitable market is recognised, the company must position its product and image to satisfy its target customer’s perceptions and needs. As a new company in India, Volkswagen will face tough competition from the existing automobile companies in India and from the other international companies which would be coming to India in future. Volkswagen wishes to enter the automobile sector by launching itself in the small passenger car market with its model Lupo. Its main target customers are safety conscious upscale families, the rural market, high income group individuals, working women class and middle class families from city. Volkswagen could position itself by highlighting its brand image or by stating its unique features or illustrating its value propositions. An overview of the value proposition statements and emphasised benefits for each of the target groups will be presented in section 7.1 “Target Markets and Market Positioning”. 5.4 Marketing Mix Strategies Product Volkswagen Lupo that offers to market will be in a standard format. Volkswagen will also offer well package service with lower price. Company also with emphasize on good branding such fuel consumption effectiveness and durability. There is also extra sale promotion such as free airbags, electronic windows, air conditioner, wheel caps and also negotiation with financial institutions for a discounting on interest rate for some amount of first customers. Volkswagen also do research and development (R&D) in order to increase quality service. Pricing The price for selling cars will be very competitive because in Indian today, they have many foreign and local based companies that compete and provide their best services. So as the new entrants the company may standardized the price in the market by giving discount and also credit Marketing: Concepts and Applications - 26 - University of Technology, Sydney Marketing Plan: VW Lupo payment for customer. These factors will lead company to better performance and all these strategy had been set without ignoring the tax, service charge, and the insurance charges. Distribution The most appropriate distribution strategy would be direct distribution channel. Volkswagen already had their subsidiary in India which is Skoda. So it will be easy because they already have the experience in Indian Market. For the first time, the company would use Skoda dealers and service centres but would have separate showrooms. In the future the Company will establish their own outlets. Start from 3-4 outlets in the main cities and expand at a rate of one outlet a year in a period of five years . By doing direct distribution, Volkswagen will have better control over the market in India. Promotion Promotion can be done by introducing the Volkswagen Lupo in the car show. By doing car shows, customers will see the car specification directly. It will create brand awareness and also will attract new customers. Besides that, promotion in mass media and using public relation also appropriate for part of promotions. It’s very important for customers to know the products. 5.5 Preferred Strategy After considering the above alternative marketing strategies, Volkswagen chooses to direct its main marketing activity mainly towards the urban high and middle income families and young executives as their main target market customers. It wishes to deliver quality products to the customers at reasonably competitive prices which may not be the cheapest but yet the quality would compensate for the price the customer would be paying for the product. Product and service quality would be the unique selling propositions of Volkswagen and differentiation would be the ideal generic marketing strategy the company would be aiming for. Volkswagen would like to position Lupo mainly as a strong, reliable, stylish and economical car that would satisfy all the perceived quality and values in its target customer. The company would use a combination of push as well as pull strategy through aggressive promotional campaigns and dealer appraisal that would attract customers as well as motivate the dealers to promote the product. Volkswagen would want to widen its dealership network in India by few setting up exclusive showrooms in major cities in India and employing many car dealers and agents to promote the car all over India. Offensive penetration is the main approach of the company to enhance its product sale and brand awareness and also provide for a platform to Marketing: Concepts and Applications - 27 - University of Technology, Sydney Marketing Plan: VW Lupo launch future Volkswagen models. The strategy to be implemented is mentioned in detail in section 7. 6. OBJECTIVES The main objective of this project is to launch VW Lupo to the Indian market. However, it is important to identify more specific objectives in order to meet and easily evaluate the management performance of the company both in short term and long term. 6.1 Organisation Mission and Corporate Strategy Volkswagen has a vision to become a car manufacturer who provides all types of cars for all kinds of people and segments. Volkswagen’s mission is to create and spread brand awareness for their products and enhance their competitive position in the global market by constantly providing the customer with high quality products and a full range of professional and quality services. To achieve global market coverage, Volkswagen wishes to set up factories in strategic places all over the world to be able to produce and distribute the cars worldwide (see Appendix 9 “production facilities worldwide”). 6.2 Company Product and Market Objectives in India Volkswagen offers two types of products, which are customised products and standardised products. In the customised product, the customer will be able to choose the type of car with the combination of car accessories that they want based on their request. Conversely, with the standardised product, the product features have already been defined by the company according to the needs of the standard car buyers. Volkswagen has planned to expand to the Indian market and their mission is to create brand awareness in India. The objective of Volkswagen is in the Indian market is to gain a market share of 8% for the first five years and to build up service centres and distribution. Service coverage should achieve 75% coverage of the most densely populated areas in India (see also section 7.2.2). In addition to that, Volkswagen’s objective is to be able to export cars which are produced in India in the next 5 years to achieve further coverage in the Asian region. Furthermore, Volkswagen’s objective is to develop an image as a high value brand name car manufacturer and to make customers recognise Volkswagen products as high quality products. Marketing: Concepts and Applications - 28 - University of Technology, Sydney Marketing Plan: VW Lupo 7. RECOMMENDED MARKETING STRATEGY 7.1 Target Markets and Market Positioning There have been four target markets identified in section 5.3. These target markets are safety conscious families, independent working women, high income class people and urban families. The Volkswagen Lupo has individual features as will be discussed in section 7.2.1 “product and service”, that appeal to each of these target markets. Mainly, the safety conscious families will appeal to durability and safety of the car. Independent working women are mainly targeted by emphasising the convenience and style of the Lupo. For high income class people, the brand reputation plays the most important role and makes up the competitive advantage over other cars such as Maruti, Hyundai or Tata vehicles. Finally, urban families will be targeted by accentuating the fuel efficiency, high quality of the car and the safety features. Target Customer Benefits Value Proposition Statement Safety Conscious Families Durability & Safety “You are in safe hands” Independent Working Women Convenience & Style “She drives you crazy” High Income Class Status & Prestige “Brand at Your Service” Urban Families Economy and Quality “The Volkswagen Value” Target Markets and Positioning Statements 7.2 Marketing Mix The recommended marketing mix for Volkswagens undertaking in India consists of product/service, place, price and promotion strategies which are elaborated on in the following sections. 7.2.1 Product and Service The Lupo model is the smallest model besides the Polo model in the Volkswagen product range and has been selected for the Indian market because of its compact dimensions that fit in the needs of Indian urban transportation. It yet offers comfort and product features rather known from bigger car models. This will significantly differentiate the Lupo car from other cars of its class. All Volkswagen cars are manufactured using sheets of higher strength for a higher resistance car body, making it strong and durable. Marketing: Concepts and Applications - 29 - University of Technology, Sydney Marketing Plan: VW Lupo Two different versions of the Lupo will cater future customers. The first version, “Lupo” will be a basic version with the general high-standard features of Volkswagen cars. The second version, “Lupo 3L TDI” is a comfort line version which features extras that are not included in the basic version. The “Lupo 3L TDI” will contain the 3 litre Turbo Diesel Injection engine that has more horsepower and lower fuel consumption at the same time. It will also be equipped with Air Bags, power windows and power steering. LUPO 50 hp Otto engine 5 gears manual transmission Air Conditioner Car Stereo (2 speakers, radio/cassette) LUPO 3L TDI 61 hp Diesel 3L TDI engine 5 gears manual transmission Air Conditioner Power Steering Power Windows Automatic Locks Air bags Car Stereo (4 speakers surround system, CD player) In addition to these two Lupo versions, there will be a range of extras available that can be ordered. These include: adjustable steering wheel, theft protection system, automatic locks, side air bags, roof top and air filtering system. It is also possible to replace the 50 hp engine with a stronger Otto engine as VW produces regular 5-gear Lupo engines with up to 75 hp. A 4-gear automatic transmission model is available as well. A Volkswagen service network will be built up as well. The service coverage will first include the major cities where marketing efforts are concentrated (see the following section 7.2.2 for details). This service network will be gradually extended to build up basic service coverage for about 75% of the highest densely populated areas in India within a five year period. Because the service coverage can even after this five year period not keep up with Maruti, the emphasis will be on high-quality and reliable service. 7.2.2 Place (Distribution) As Volkswagen’s subsidiary Skoda already exists in India, initially a shared use of showroom facilities in India could be considered. This would assure a quick market entrance. While using the Skoda showrooms, the Volkswagen Lupo car should, however, not be placed with the other Skoda cars to prevent customers confusing the different brands. The showrooms should therefore provide separate rooms or at least a clear separation of the different Volkswagen group brands present (Skoda and Volkswagen). Marketing: Concepts and Applications - 30 - University of Technology, Sydney Marketing Plan: VW Lupo The long-term objective, however, should be to have exclusive showrooms in some selected cities and providing service centre coverage in the main areas. Skoda started its operation in New Delhi, Mumbai and Goa and then expanded its operation. The number of Skoda dealers was four in the beginning and then it has been extended (The Hindu 2001). Volkswagen should follow a similar strategy, concentrating on some important areas first, and then further expanding their operations: While launching Lupo, the distribution should focus mainly on the big cities, extend their dealership network and agents to smaller cities and towns to expand their coverage. In the beginning four outlets in only the major four cities of India should be set up. These major cities are Mumbai , Kolkata, Delhi and Chennai. The objective will be to expand the number of outlets within a five year period to a total number of around 60. 7.2.3 Price To compete with its competitor Hyundai, who is probably the most important rival of Volkswagen in the small car segment, Volkswagen main goal is to offer its basic model of the Lupo at a comparable price to the Hyundai Santo. The Hyundai Santo is offered at a price of about 320,000 Rs (about AUD 10,200). This is a significantly lower price than the German price for the Lupo (about AUD 13,000 excluding GST). However, relatively big price differences in the car market are a usual phenomenon in the international marketplace, even within the single European market which has quite similar market conditions (Goldbe and Verboven 1998). Since Volkswagen will produce the cars locally in India and can therefore profit from the lower labour costs in India, forecasted production costs allow the price to be set at about Rs.320,000 in India. A detailed calculation of the manufacturing costs underlying this assumption can be found in section 8.2. The price for the Diesel model with the 3L engine will be set at around 380,000, exceeding the usual price for small cars in India. However, the car offers much greater value and unique technology, namely the lowest fuel consumption and a comfort configuration (for Details see section 7.2.1 “Product and Service). Setting the price for the standard model at the level of the Hyundai Santo and the price for the 3L Diesel model at a higher level will mean that customers perceive the Volkswagen Lupo as high-end car. Still, it offers great consumer value. This is because of the high level of brand benefits and product benefits (including low cost of ownership). Marketing: Concepts and Applications - 31 - University of Technology, Sydney Marketing Plan: VW Lupo 7.2.4 Promotion Volkswagen is a major international car brand with a high reputation. However in India, it is entering a completely new market where it would need aggressive advertising a promotional strategies to create brand awareness and to compete with other car companies that are already present. A ‘rapid penetration’ strategy suits the needs to introduce its brand “Lupo” in the Indian market. The promotional strategy should be implemented in the following ways: Advertising Advertising must be done on a large scale to pull customer’s demand for the car and recognise the brand. Intensive advertisements must be done using mass-media such as national and cable television networks and cinema theatres. Advertisements should be conceived to appeal the emotional and brand benefits to the consumer. Recognised movie celebrates could be used as brand ambassadors for Volkswagen. Since our main target customers would be from the middle and high income class that is made up of a significant number of young professional people, advertisers should use young celebrities who are youth related or looked up to. The advertisements should be able to convey the product and brand utilities such as comfort, reliability, fuel efficiency, convenience factor and style. IT could use creative and catchy slogans like, ’this is what we call Volkswagen value” which could establish a brand personality in the audiences’ mind. Apart from television; billboard and hoardings could be put up at certain prime locations in the major cities and highways. Auto-magazines and newspapers would also be suitable for advertisements. Public Relations Volkswagen could also consider to sponsor cultural and sports events such as cricket matches and star-shows. These would gain the company recognition through all over the country activities which would enhance its demonstration of goodwill and create a very positive brand image. Sales Promotion A push strategy to promote its sales and brand by giving car dealers high sales commissions is a prosperous way to align distributors with the companies’ strategy. Product demonstrations and organised sales contests with valuable rewards are additional ways of enforcing effective distribution that could be considered. Besides that, consumers would be attracted by offering attractive discounts on purchases within a stipulated period of time, as well as providing attractive promotional packages in the festival Marketing: Concepts and Applications - 32 - University of Technology, Sydney Marketing Plan: VW Lupo seasons where Volkswagen would away extra accessories for free or a discounted price. The major festival seasons are mentioned in section three. Volkswagen could also arrange zero percent or low interest finance options where customers could pay in instalments within a fixed period of time. These would fit in the changing attitude of many Indian customers towards consumption on credit (see section three). Online marketing Volkswagen should create an Indian version of its website to its home page called “Volkswagen.com” where customers could obtain information on dealers, products and activities in India. The internet has become an integral part of customer’s lifes especially among the targeted group of middle/high income customers. It is therefore an effective tool for marketing the brand and product. In the long-term, it is considerable to offer an electronic distribution channel via the internet as well. In Germany, consumers are able to configure their Lupo car on the web. As the preferred purchase method for car is still through distributors and showrooms that allow a physical encounter with the product, the introduction of on-line distribution is, however, not among the first priority things to implement. 8. ECONOMIC EVALUATIONS The related entry strategies previously mentioned in this marketing plan will be about to reflect the assumptions used to forecast the financial model. However, the problem is the estimation in this section cannot be based very much on the VW’s existing data because the market is new and, consequently, the environment might be so different from the VW’s existing markets. Hence, the forecast would be more realistic and more reasonable if the information from an existing organisation in the market is used. By this reason, in this project, the data from the market leader, Maruti Udyog Ltd(Karvy security Limited) is chosen to evaluate assumptions as the following. 8.1 Planning Assumptions The assumptions below will be examined with regard to the factors dominating forecasting. Market sizes This marketing plan expects the market volume to be continually growing by 5% per year due to the rising levels of household disposable income, decreasing per kilometer ownership costs (including purchase, fuel cost, repair and insurance) and improving road network.(Kavy.com, 2003). Furthermore, the market volume in 2005 is predicted to grow considerably due to an announcement of the Indian government to cut tax on excise from 24% to 16%, which is similar Marketing: Concepts and Applications - 33 - University of Technology, Sydney Marketing Plan: VW Lupo to the situation in 2002-2003 that the excise was cut from 32% and resulted in the growth of approximately 9%.(MUL IPO, p.8, 2003) Market shares One of the objectives of this plan is to gain the 8% market shares in five years. This evaluation is based on the case of Hyundai who gained the great market share of 16% in 7 year period. Although VW has enough potential to do so, it is not expected to be similarly successful as Hyundai, due to the more highly competitive market. Therefore, 8% in five years might be an optimum and satisfied level for this investment. Prices Because the position of VW Lupo is that it is a premium small car for middle-to-high income people, the VW Lupo’s price would be set up at slightly higher than other competitors’. The price of standard model will be set up at 320000 Rs which is close to the price of Hyundai Santro, while the full option diesel model will be set up at 380000 Rs. The prices is planed to stay constant at these amounts until a new model has been launched, which is not in the near future (after five years). However, the Indian government has announced that the excise will be reduced from 24% to 16% in 2005 (Maruti IPO, p.8, 2003). Therefore, the price of VW Lupo will be rearranged by the same percentage in that year. Revenues A change in revenue usually depends heavily on market size, market share and prices of products. Although the price of VW Lupo will stay constant, the market size and market share are expected to grow significantly. This will consequently result in an increase in revenue Cost Operating and administration costs to produce cars are projected to stay constant as well as prices. Although there may be an increase in wages and prices of raw materials, due to the increasing inflation, better skills of workers and a discount from the bigger bulk purchase of raw materials in the future will offset an increase in costs to near zero. However, the variable cost still depends on the number of cars being produced. Marketing Budget Maruti Udyog Ltd has set the marketing budget at around 4800 million Rupees (154 million AUD) which is the very large amount compared to the forecast sales of VW. Therefore, VW is Marketing: Concepts and Applications - 34 - University of Technology, Sydney Marketing Plan: VW Lupo unable to set the equal amount of marketing budget with Maruti. Nevertheless, it could set the budget respectively related to Maruti in the term of percentage. From its profit and loss statement, Maruti Udyog usually set the marketing budget at approximately 6% of gross sales. VW can similarly set its marketing budget related to the industry standard (in this case Maruti is considered as a standard). However, in order to gain market share of 8% in five years, VW may have to set the budget excess industry’s standard. In this project, the marketing budget is set up at 10% in the first two years and the percentage will slightly decrease to 8% in the following years. 8.2 Forecast Sales Sales forecast 700000000 Sales (AUD) 600000000 500000000 400000000 Diesel Model 300000000 Standard Model 200000000 100000000 0 1 2 3 4 5 Year enter the market Forecast Profit and Loss Statement 2004 Market Volumes 2005 2006 2007 2008 666,208 686,195 754,815 807,653 856,113 Market shares 1.50% 3.00% 6.50% 7.25% 8.00% Unit volumes 9,994 20,586 49,063 58,555 68,490 11,032 11,032 9,324 9,324 9,324 Gross sales 110,256,693 227,110,695 457,463,412 545,966,820 638,600,760 Excise Duty (26,461,606) (54,506,567) (73,194,146) (87,354,691) (102,176,122) 83,795,087 172,604,128 384,269,266 458,612,129 536,424,638 Raw Materials & Components (60,641,181) (124,910,882) (251,604,877) (300,281,751) (351,230,418) Cost of Spares/Dies & Moulds (5,512,835) (11,355,535) (22,873,171) (27,298,341) (31,930,038) Employee costs (2,756,417) (5,677,767) (11,436,585) (13,649,171) (15,965,019) Expected price Net Sales Marketing: Concepts and Applications - 35 - University of Technology, Sydney Admin & Other expenses Marketing Plan: VW Lupo (4,410,268) (4,851,294) (5,336,424) (5,870,066) (6,457,073) Marketing Expenses (11,025,669) (22,711,069) (36,597,100) (43,677,400) (51,088,100) Total Expenditure (84,346,370) (169,506,548) (327,848,156) (390,776,729) (456,670,648) (551,283) 3,097,580 56,421,110 67,835,400 79,753,990 Operating Profit Critical points - The market volume in 2002 is 634484 (Maruti IPO, p. , 2003) and it is projected to grow 5% in the 2004, 3%, 10%, 7% and 6% respectively in the following years. - Excise duty will be 24% of gross during 2004 to 2005 and 16% from 2006 to 2008. - Standard model price is 320000 Rs (10263 AUD) and expected to be sold 60% of total, and diesel model price is 380000 Rs (12187 AUD) and expected to be sold 40% of total. Therefore, the calculation of the average price is (320000*0.6)+(380000*0.4) which is 344000 Rs.(11,032 AUD) - Costs occurred in this forecast is based on the cost percentages in the Maruti’s estimated profit and loss statement. - Marketing budget is 10% in the first two years and 8% in the next three years. - This profit and loss statement is done in Australian dollar. (At the exchange rate 31.1812 Rs per AUD) 8.3 Forecast Profitability / Break Even Analysis Break even analysis Cost Revenue 175,000,000 150,000,000 AUD$ 125,000,000 100,000,000 75,000,000 50,000,000 25,000,000 Unit volumes Marketing: Concepts and Applications - 36 - 20000 19000 18000 17000 16000 15000 14000 13000 12000 11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 0 University of Technology, Sydney Marketing Plan: VW Lupo From the figure above, the break even point of this project is 10336 units per year. The fixed and variable costs are based on the forecast in 2004. This number implies that if VW has over 1.56% market share, it will gain profit. However, the projected number in 2004 is just about 1.5%. Therefore, VW may make loss in the first year and then gain profit in the following years. 8.4 Sensitivity Analysis The forecast above is the most likely situation estimated from present information. However, the condition may alter, leading to the change in number in the previous section. The following will present the possible worst case and the possible best case. The worst case 2004 Market Volumes 2005 2006 2007 2008 666,208 679,533 720,305 756,321 786,574 Market shares 1.00% 1.05% 2.50% 3.00% 3.50% Unit volumes 6,663 7,136 18,008 22,690 27,531 11,032 11,032 9,324 9,324 9,324 Gross sales 73,508,140 78,726,412 167,906,592 211,561,560 256,699,044 Excise Duty -17,641,953 -18,894,339 -26,865,055 -33,849,850 -41,071,847 55,866,186 59,832,073 141,041,537 177,711,710 215,627,197 Raw Materials & Components -40,429,477 -43,299,527 -92,348,626 -116,358,858 -141,184,474 Cost of Spares/Dies & Moulds -3,675,407 -3,936,321 -8,395,330 -10,578,078 -12,834,952 Employee costs -1,837,703 -1,968,160 -4,197,665 -5,289,039 -6,417,476 expense -2,940,326 -3,149,056 -6,716,264 -8,462,462 -10,267,962 Selling & Distribution Expenses -7,350,814 -7,085,377 -13,432,600 -16,925,000 -20,536,000 -56,233,727 -59,438,441 -125,090,484 -157,613,437 -191,240,864 -367,541 393,632 15,951,054 20,098,273 24,386,333 Expected price Net Sales Manufucturing/Admin&Other Total Expenditure Operating Profit The worse case is to assume that the sensitive factors such as the market size and market share may be worse than the previous section has expected. To be more specific, the growth of market volume is expected to be lower than the previous estimation by 2-4% each year. Also, VW may face the difficulty to penetrate market due to the possibility to enter the market of potential competitors such as Honda and Toyota. This may result in the lower sales estimated and, Marketing: Concepts and Applications - 37 - University of Technology, Sydney Marketing Plan: VW Lupo consequently, lead to low profit. However, in this worst situation, VW still have positive number in profit excepting the first year. This means VW will survive despite the worst situation. The best case 2004 Market Volumes 2005 2006 2007 2008 672,553 712,907 791,327 862,547 922,926 Market shares 2.00% 4.00% 8.00% 10.00% 12.00% Unit volumes 13,452 28,517 63,307 86,255 110,752 Expected price 11,032 11,032 9,324 9,324 9,324 Gross sales 148,406,347 314,607,776 590,274,468 804,241,620 1,032,651,648 Excise Duty (35,617,523) (75,505,866) (94,443,915) (128,678,659) (165,224,264) Net Sales 112,788,824 239,101,910 495,830,553 675,562,961 867,427,384 Raw Materials & Components (81,623,491) (173,034,277) (324,650,957) (442,332,891) (567,958,406) Cost of Spares/Dies & Moulds (7,420,317) (15,730,389) (29,513,723) (40,212,081) (51,632,582) Employee costs (3,710,159) (7,865,194) (14,756,862) (20,106,041) (25,816,291) (4410268) (4851295) (5336424) (5870067) (6457073) (11025669) (22711069) (36597100) (43677400) (51088100) (108,189,904) (224,192,225) (410,855,067) (552,198,479) (702,952,453) 4,598,920 14,909,686 84,975,486 123,364,482 164,474,931 Manufucturing/Admin&Other expense Selling & Distribution Expenses Total Expenditure Operating Profit On the contrary, conditions may be better than we have expected. The market volume may yield more than the most likely case 1% or 2% each year. Also, VW is possibly more popular than we have thought. This may result not only in a more significant growth in market volume but also in a considerable increase in market share. However, according to the figure above, the number of cars sold in 2004 is over 100000 units which may not meet the capability of production. In this case, VW may solve the problem by, for the short term, order cars from the existing plant in China and, for the long term, expanding a new factory. Marketing: Concepts and Applications - 38 - University of Technology, Sydney Marketing Plan: VW Lupo 9. IMPLEMENTATION AND CONTROL In this section an action plan will be introduced which includes the steps necessary to enter the Indian market and provides guidelines for the monitoring of the implementation of this action plan. The activities should be performed in the given order. However, start and completion dates therefore depend on the final starting date and the aspired completion date of the market entrance and have therefore been omitted for later determination upon the beginning of the undertaking. 9.1 Formal Project Plan for Implementation (1) Activity/Task: Conducting Marketing Research of further detail Responsible: Global Marketing Research Department Brief Description – The most important factors of the situation analysis (section 3) and the economic evaluation (section 8) in this report has to be approved for actuality. Forecasts should be approved by a third party, e.g. a local consulting firm, to ensure planning accuracy. This is to ensure that later decisions are based on accurate information. Special considerations should be made to find out about possible necessary product modifications for Indian customers. (2) Activity/Task: Setting Up Objectives Responsible: Regional Manager Asia-Pacific and Top-Level Management Brief Description – Derived from the objectives presented in this report (section 6) and the market forecasts (section 8) clear objectives concerning sales volume, market share and customer satisfaction should be set up. Exact and measurable objectives should be set for different stages of the implementation. These objectives will be checked in monthly milestone-sessions to prevent getting off track from the long-term objectives. (3) Activity/Task: Set-Up of Public Relations Department Responsible: Regional Management Asia-Pacific Brief Description – The public relations department has to be one of the first departments that are set up. This is because of the expected press coverage about Volkswagen’s activities in India and relations to the government or potential business partners that have to be maintained. If there are no official statements from the company about rumours and news reports, Volkswagen is likely to become overwhelmed by eventually unwanted press coverage and rumours. (4) Activity/Task: Set-Up of Operations Facilities and Management Responsible: Regional Management Asia-Pacific Marketing: Concepts and Applications - 39 - University of Technology, Sydney Involved: Marketing Plan: VW Lupo Specialists from Operations Departments Brief Description – The operations facilities and their management should be set up parallel to all further activities. They will provide the production backbone of Volkswagen for their future operations in India. (5) Activity/Task: Setting up of dealership and channel networks Responsible: Head of Distribution Department India Involved: Marketing Department India Brief Description – The dealership and channel networks need to be built up before the first cars are manufactured. Legal contracts with dealers have to be arranged, showrooms need to be established and marketing information needs to be communicated with everybody in the distribution chain. As discussed in section 7.2.2, five showrooms should be initially established. Showrooms could be provided with imported Lupo cars from Europe in advance for early press announcements. (6) Activity/Task: Structure Sales-Promotion and Advertising Strategies Responsible: Head of Marketing Department India Involved: Indian Media and Advertising Agencies Brief Description – Sales Promotion and Advertising Strategies should be developed well in advance before production and marketing implementation start. By that, flexibility with the timing of the final campaign remains (e.g. start on a festival date). The process should involve local media and advertising agencies to ensure that efficient communication campaigns are designed. (7) Activity/Task: Implementation of promotion strategies Responsible: Head of Marketing Department India Brief Description: The sales-promotion and advertising strategies will be launched shortly before the beginning of Volkswagen’s production activity in India. 9.2 Monitoring of Action Plan The action plan needs to be monitored regularly. There should be pre defined procedures of the action to be taken if any performance is not according to projected figures. As mentioned in activity (2) of the section 9.1, monthly milestone sessions that check upon current performance should be held within all departments, particularly the finance and the marketing department. The finance and the marketing department should be in vital exchange to stick to appropriate expenses and forecasts with all plans. Results of the weekly performance checks will be forwarded to the management of Volkswagen Asia-Pacific who then reports to the Volkswagen AG top-level management. This is essential to Marketing: Concepts and Applications - 40 - University of Technology, Sydney Marketing Plan: VW Lupo ensure that all activities and expenses stay within budgets and to be able to recognise any problems at an early stage. APPENDICES Appendix 1 Currency Exchange Rates These are the currency exchange rates used within this document. 1 Australia - DOLLAR (AUD) = 31.1812 Indian - RUPEE (INR) 1 Indian - RUPEE (INR) = 0.0320 Australia - DOLLAR (AUD) (Yahoo India) 1 Australia - DOLLAR (AUD) = 0.5568 EURO (EUR) 1 EURO (EUR) = 1.7960 Australia - DOLLAR (AUD) 1 Australia - DOLLAR (AUD) = 0.6574 United States - DOLLAR (USD) 1 United States - DOLLAR (USD) = 1.5211 Australia - DOLLAR (AUD) (Travelex) (As on Tue. 14th October 2003) (Yahoo India, Travelex) Appendix 2 Political System in India The President is the constitutional head of Executive of the Union. Real executive power vests in a Council of Ministers with the Prime Minister as head. Article 74(1) of the Constitution provides that there shall be a Council of Ministers headed by the Prime Minister to aid and advise the President who shall, in exercise of his functions, act in accordance with such advice. The Council of Ministers is collectively responsible to the Lok Sabha, the House of the People. In the states, the Governor, as the representative of the President, is the head of Executive, but real executive power rests with the Chief Minister who heads the Council of Ministers. The Council of Ministers of a state is collectively responsible to the elected legislative assembly of the state. The Constitution governs the sharing of legislative power between Parliament and the State Legislatures, and provides for the vesting of residual powers in Parliament. The power to amend the Constitution also vests in Parliament. The Union Executive consists of the President, the Vice-President and Council of Ministers with the Prime Minister at the head to aid and advise the President. India has become a nuclear power and had its first nuclear tests in May, 1998 due to which India did not seem to be in the good books of the United States Government for a few years and USA had imposed some sanctions against India. But India is highly self-sufficient in terms of basic technology and requirements and hence the threat sanctions did not affect India significantly. Marketing: Concepts and Applications - 41 - University of Technology, Sydney Marketing Plan: VW Lupo However within a few years, the undercurrent tensions were resolved and now in fact United States has often referred to India as a great potential trading partner. Appendix 3 Demographic Environment Demographic refers to the study of human population with reference to its size, density , growth rate, distribution, sex and age composition, level of education, occupation etc. The study of this environment is of vital significance as it helps marketers to recognise and segment potential target customers and their respective needs so as to they can direct their activities to satisfy the customer needs and expectations. India is the second most populous country after China with an estimated population in 2003 of 1,049,700,118 people and growing. The average growth rate is between 1.7-2.0% per annum. It accounts for almost 16.7% of world population. (Wall Street View) Over the years the density of population in India has also significantly increased. From 117 persons/ sq. km in 1951 it has increased to 324 persons / sq. km in 2001, the most densely populated state being West Bengal. The study of the population density helps to concentrate marketing efforts on those states or cities in which there are maximum potential customers. The majority of people in India stay in villages. In 2001 the urban-rural ratio was 72:28 which indicates nearly 2/3rd of population resides in rural areas. However the urban market is the biggest potential market for multinational companies due to its high density and level of education. The sex ratio is more in favour of the males. As per the 2001 Census there are 933 females per 1000 males. Appendix 4 Foreign Direct Investment Foreign Direct Investment strategy of India was rigid in early days of independence. But from time to time it has been relaxed and the growing importance of automobile sector of India to the development of economic condition of the country has forced to do that. At this moment, in India, import of automobile both new and second hand are permitted. The other non-tariff bariers has also been removed to instigate the foreign investers to invest to the automobile sector of India. At the same time the Government of India has lowered tax and duties (including custom duty) on automobiles. To instigate the investment, Government has reduced to external commercial borrowings and also reduced the lending rates within the country. The infrastructure of the country such as roads, highways, bridges etc. has also developed to attract the foreign manufacturers and to increase investment from different auto giants of the World. From 1991, because of the change in policy, India has become an attractive place for Foreign Direct Marketing: Concepts and Applications - 42 - University of Technology, Sydney Marketing Plan: VW Lupo Investment. In the year 1999, India estimated a total inflow of $ 2 billion (market value) direct investment. (Trade association of India) The data which clarify the change of Foreign Direct Investment in India from 1991. can see in table below: (Reserve Bank of India) 3500 3000 2500 2000 1500 1000 500 0 1991-1992 1993-1994 1995-1996 1997-1998 1998-1999 (AprilDecember) 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1997-1998 1998-1999 1992 1993 1994 1995 1996 1997 1998 (April- (April- December) December) 2511 1562 FDI 129 315 586 1314 2133 2696 3197 Foreign Direct Investment (Reserve Bank of India). Appendix 5 GDP and Real GDP growth 700 600 500 400 300 200 100 0 GDP 8 6 4 GDP (US$ b) Real GDP growth 2 0 1998 1999 2000 2001 2002 2003 414.3 444.4 450.7 481.4 501.2 572.7 6.0 7.1 3.9 5.5 4.3 6.0 (US$ b) Real GDP Marketing: Concepts and Applications - 43 - University of Technology, Sydney Marketing Plan: VW Lupo growth GDP and Real GDP Growth (Tradewatch). Appendix 6 Development of Inflation in India 14 12 10 8 6 4 2 0 1998 Inflation 1999 2000 2001 2002 2003 1998 1999 2000 2001 2002 2003 13.2 4.7 4.0 3.8 4.3 4.6 Development of Inflation in India (Tradewatch). Appendix 7 Exim Policy: The import of automobiles is subject to India’s Exim Policy. “Import of new automobiles allowed subject to following conditions: (i) Import allowed only from the country of manufacture; (ii) Import of left hand drive vehicles not allowed; (iii) Imported vehicles to conform to the provisions of Motor Vehicles Act, 1988; (iv) Prototype of vehicle to be approved by notified agencies in India” (JaipurPlus) Appendix 8 Organisational Structure of the Volkswagen AG Volkswagen AG Audi Group Lamborghini Audi Volkswagen Group SEAT Marketing: Concepts and Applications Skoda - 44 - Bentley Volkswagen Commercial Vehicles Volkswagen Bugatti University of Technology, Sydney Marketing Plan: VW Lupo Organisational Structure of the Volkswagen AG Appendix 9 Production Facilities Worldwide Production facilities worldwide (Volkswagen 2003) Appendix 10 Porter’s Five Forces Threat of New Entrants Bargaining Bargaining Power of Industry Suppliers Competitors Power of Customers Threat of Substitutes Porter’s Five Forces Analysis (Kotler, 2000) Marketing: Concepts and Applications - 45 - University of Technology, Sydney Marketing Plan: VW Lupo Appendix 11 Entry and Exit Barriers Exit Barriers Low, Stable Return Low, Risky Return High, Stable return High, Risky Return Entry Barriers Entry and Exit Barriers (Kotler, 2000) Appendix 13 Market Attractiveness Market Attractiveness Factors Relative Importance Market Forces Market Size Growth rate Buyer Power Customer Loyalty Very 0 2 5 1 3 4 6 X X X X 20% 30% 30% 20% 100% Market Access Customer Familiarity Channel Access Sales Requirements Company Fit Market Forces Competitive Intensity Market Access Attractive 30% 30% 20% 20% 100% Competitive Intensity Number of Competitors Price Rivalry Ease of Entry Substitutes Market Attractiveness Not X X X X 180 120 60 40 400 40 30 120 40 230 X 25% 25% 20% 30% 100% Overall Score X X X 75 75 40 180 370 Relative Weight Factor Score Overall Score Maximum Score Percent of Max. 0.30 0.40 0.30 1.00 400 230 370 1000 120 92 111 323 180 240 180 600 67% 38% 62% 54% Marketing: Concepts and Applications - 46 - University of Technology, Sydney Appendix 14 Marketing Plan: VW Lupo Competitive Advantage Way Competitive Advantage Factors Relative Importance Behind 0 Differentiation Advantage Product Quality Service Quality Brand Image Relative Price Cost Advantage Unit Cost Transaction Cost Marketing Expenses Overhead Expenses Marketing Advantage Market Share Brand Awareness Distribution Sales Coverage Source of Competitive Advantage Differentiation Advantage Cost Advantage Marketing Advantage 1 25% 25% 25% 25% 100% 2 3 4 5 X X X X 30% 20% 30% 20% 100% X X X X 30% 20% 25% 25% 100% X X X X Relative Weight 0.30 0.40 0.30 1.00 Marketing: Concepts and Applications Way Ahead Equal - 47 - Factor Score 425 240 170 835 Overall Score 127.5 96 51 274.5 Overall Score 6 125 125 125 50 425 60 20 120 40 240 30 40 50 50 170 Maximum Percent of Score Max. 180 71% 240 40% 180 28% 600 46% University of Technology, Sydney Appendix 15 Marketing Plan: VW Lupo BCG Matrix ? Appendix 16 Very Attractive Portfolio Analysis and Strategic Market Plans Offensive Offensive (Grow) (Grow) Defensive Defensive (Protect) Market Attractiveness (Protect) Very Unattractive Offensive Offensive Offensive (Grow) (Grow) (Grow) Defensive Defensive Defensive (Protect/Harvest) (Protect/Focus) (Protect/Focus) Defensive Defensive Defensive (Divest or Harvest) (Divest or Harvest) (Protect or Harvest) Very Weak Very Strong Competitive Advantage Marketing: Concepts and Applications - 48 - University of Technology, Sydney Marketing Plan: VW Lupo BIBLIOGRAPHY Asia Times (WWW) http://www.atimes.com/ (accessed 15 August 2003) Australian Department of Foreign Affair and Trade (WWW) http://www.dfat.gov.au (accessed 15 August 2003) Automotive Intelligence (2002) Volkswagen Group, Wolfsburg, Germany. (WWW) http://www.autointellnews.com/european_companies/volkswagen/ vw_marke/volkswagen-group.htm (accessed 4 September 2003) Autostadt (2003) Autostadt InfoSite. 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Asian Business Strategy & Street Intelligence Ezine, Asia Pacific Management Forum (WWW) http://www.apmforum.com/columns/china20.htm (accessed 3 September 2003) Yahoo India News (WWW) http://in.news.yahoo.com/ (accessed 15 August 2003) Marketing: Concepts and Applications - 51 - University of Technology, Sydney Marketing Plan: VW Lupo END NOTES Volkswagen, Skoda, Hyundai, Toyota, Mercedes-Benz, General Motors (GM), Peugeot, Maruti and Tata Motor are protected trademarks. During the research we have conducted, we found out that according to the Times News Network (Kuber 2003), Volkswagen is actually considering to launch the Lupo car and a commercial vehicle in India. Further news or details about the progress and actuality of this issue are unfortunately unknown to us and might have not been disclosed by Volkswagen Asia-Pacific yet. Marketing: Concepts and Applications - 52 -
