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Luxury goes for the premium plunge


After tasting initial success, the three top players in the luxury car market are getting even more aggressive on price. Is the effort really worth it? By Deepanshu Taumar
DEEPANSHU TAUMAR | Issue Dated: March 4, 2013, New Delhi
Tags : luxury car | Audi | Volkswagen | BMW | Mercedes | |

Things were quite straightforward way back in 1994, when German luxury car maker Mercedes entered India to enjoy the first mover advantage and tap the small, but growing, affluent class in the country. It enjoyed a decade of monopoly in the luxury car segment till the time Audi (the luxury arm of Volkswagen) decided to make an entry in 2004. In 2006, markets dynamics were shaken further when another German player BMW eyed the growing market. From thereon, the trio has been locked in an intense competition, which saw Mercedes lose its position to BMW in 2009. Subsequently, catching up has been rather hard for the pioneer.

On initial impressions, all the three players seem to have a very similar kind of positioning – they are high-end luxury car makers whose customers are driven by the aspirational values of their products as opposed to functional values. But a closer look reveals significant differences. First of all, BMW changed the game by addressing a younger population – in the 30-40 years age group – as opposed to Mercedes, which was targeting individuals above the age of 40. Secondly, the company introduced the concept of affordable luxury. It tapped commercial users of luxury cars such as premium hotels and cab owners by selling stripped down versions of traditional models to them. Later, BMW introduced these versions to retail customers, which led to an unprecedented momentum in sales figures. The BMW 3 series came first, and next year in 2010, the company launched the BMW X1, which was their lowest priced car. The 3 series, which was a runaway success, was redefined in July 2012. BMW is positioned as a youthful brand that symbolises aggression and speed. Audi, on the other hand, is positioned as a stylish car backed by a great passion for engineering with the tagline 'Vorsprung durch Technik' in German, which means 'Lead by Technology'.

How is the erstwhile leader looking at this transformation in fortunes? “In the traditional luxury market i. e. above the Rs.30 lakh bracket, Mercedes is way ahead of the competition. But there are no volumes or numbers that we can share,” proclaims Debashis Mitra, Director, Sales & Marketing, Mercedes India. But even Mercedes is changing its positioning after around 16 years from a chauffeur-driven car, which was favored mostly by senior executives; to a more youth oriented brand that is associated with the Formula One. Last year, Mercedes launched the AMG driving academy, which has top drivers from the world teaching those who enroll for its course. The experience is aimed at building a strong association for Mercedes with sportiness. Further, to counter the advances of these two players, Mercedes has launched its B-class at a competitive price of Rs.21.04 lakh as compared to BMW X1 (Rs.22.40 lakh) and Audi Q3 (Rs.26.71 lakh), which were launched this year in June.
The traditional luxury car market is defined as cars that are priced above Rs.30 lakh. Cars like the B-Class, BMW X1 and Audi Q3 have defined a completely new segment in the luxury car market (Rs.25-30 lakh), as they are closer to the premium segment in terms of pricing. Companies are deliberately pursuing a downmarket stretch to generate volumes. That was the reason why the BMW introduced its sub-brand Mini Cooper in this Auto Expo with three different models - Mini Cooper, Mini Cooper convertible and Countryman - priced aggressively between Rs.24.90 lakh & Rs.31.99 lakh.

In addition, the war for market share now will depend quite significantly on how these three players leverage markets beyond the metros. Recently, BMW took up the initiative of introducing mobile showrooms to tap its new target markets like Karnal, Agra, Dehradun, Jamshedpur, Patna, Bhopal and Nashik. BMW believes that a lot of potential lies in these places for their entry level vehicles. Presently, the company has 25 dealerships in 18 cities and aims to open 40 more by the end of 2012, with 80% of cars financed by its financing arm. Mercedes is not far behind when it comes to tapping the potential of Tier II cities and is expected to open more dealerships in Ranchi, Bhubaneswar, Patna, Karnal and Raipur. It already has 60 dealerships in 29 cities. Audi, which also enjoys economies of scale with parent brand Volkswagen and with sibling Skoda in terms of manufacturing, has only 15 dealers in 15 cities.

However, Audi now intends to take the volume game to a new level by 2015, when it will be launching the Audi A3, which is expected to be priced at Rs.20 lakh. On the other hand, BMW is increasing its capacity to 11,000 units per year by investing Rs.1.8 billion in India, which also includes the facility at Tamil Nadu. Currently, the BMW group also sells Mini and Rolls-Royce apart from the core brand. By 2020, Mercedes aims to regain its crown, which it had lost to BMW in 2009. The former will launch cars that would be priced at less than Rs.25 lakh, starting from the A-class next year. Mitra admits that the company is waiting for the market to get more mature before going for an aggressive spree of model launches.

And things are just getting started. More potential entrants are expected to put their cards on the table. Volvo is restructuring its plan to be number 3 in the Indian luxury car market by 2020 with competitive launches in the entry level premium segment.

And while India remains a price sensitive market, the upper crest is transforming fast. According to a Euromonitor report, India's luxury market is expected to grow by around 22% over the next five years to reach a size of $7 billion, outpacing even the Chinese market (growth estimated at 15%). When it comes to luxury, consumers would naturally connect with the brand that has the most premium/aspirational image. This growth in prosperity would arguably give rise to a reduced price sensitivity. So luxury carmakers need to realise that if they are going to tap the premium segment, they may have to give up some space in the luxury car market, so they have to make a choice. They certainly cannot have the best of both worlds.

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Issue Dated: Feb 5, 2017