The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Hardik Kharbanda, MBA 2014-16, Vinod Gupta School of Management, IIT Kharagpur
The numbers are looking grim for the domestic market. As per a report by Business Standard, there has been a 6.40% decline Y-O-Y in sales of passenger vehicles from 2013-14 to 2014-15. The reasons are many; rising fuel prices, interest rates, lack of space etc. which are driving growth downwards. The rising cost of raw materials, increasing pace of innovation due to customer demand for variety, infrastructure limitations and market volatility are the reasons for shrinking profits of companies. An important link that joins customer and company cost is the responsiveness. Higher responsiveness to customer demand means higher flexibility which comes at a higher cost. This too leads to shrinking profits.
All this is driving companies to integrate vertically by evolving suppliers and dealers which form the extreme ends of the entire supply chain. Through sharing of technology and best practices (knowledge) that these automotive giants have accumulated through decades, they are able to bring down costs and improve quality of raw materials. These are usually standard practices and are applicable in more or less any part of the world with few modifications. The real challenge lies in streamlining the Dealer end which is in direct contact with the customer. Companies are trying really hard to establish strong dealer relations as these touch points serve and generate the actual demand.
Today’s customer is much more informed, connected and demanding than ever. Automotive companies are innovating and changing their strategies to meet this challenge. For example, as per a report in Economic Times on Mar 12, Volkswagen is gearing up for a turnaround in India by launching new models and changing customer perceptions. The article quotes, “According to people with knowledge of the matter, the initial part of Volkswagen’s mid-term strategy includes getting the fundamentals of sales and service in place and eradicating the perception of it being a high-cost brand.” They are offering higher margins to dealers and are of the belief that dealer incentives are directly linked to customer satisfaction. Similar is the case with even luxury brands like Mercedes. As per Economic Times report on 16 Mar, Mercedes India CEO is touring Tier II and Tier III cities to open dealerships. The importance of dealer impact can be judged by this incident which featured on 14 Mar on IBC world news and is going viral on social media. A frustrated customer DONATED his vehicle for garbage collection as the company was not able to fix the electric and air-con issues in his vehicle. “Customer is the king” is what companies are really sticking to in order to avoid such disasters.