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TOP facts

Car/1000-12(one of the lowest)


Passenger car market share in Total sales 80%
Maruti Suzuki began operations in 1981
Maruti market share 49%
Production facilities-Gurgaon and Manesar
12000 employees
16 Automobile models
Sales revenue 2014-445.43 billion INR

Case analysis of Maruti Suzuki india ltd: Sustaining


profitability
Situation analysis
Maruti always have projected itself to be a peoples car and cost differentiation proved to be its major
competitive competency. With increase in input prices, fierce completion have hit the bottom line of the
company and simultaneously increase in fuel prices have hit the top line as for the first time company
experienced fall in sales .
Despite all odds RC Bhargava mulling over new strategies to counter the situation
Industry analysis
This industry can be put as emerging structure
We will use PESTLE framework to evaluate the industry and why it is difficult for any airlines to
maintain profits in long run
Political
On very onset this industry has been impacted by political decision such govt started it as a joint venture
with Suzuki in 1981 and land acquisition, labour force have always been impacted by political issues.Eg
Singur
Economic
With globalization India there is an increase in GDP as well as per capita income has increased demand
for vehicles and it has brought the competition not only from Asian giants like Hyundai or Nissan but also
from European manufacturer like Volkswagen, Renault,GM and Volvo
Social
In India cars are still seen as a status symbol and brand of the car affect position of a person in society and
demand as well driven by such factors eg Maruti 800
Technological
With increase in customer consciousness towards the demand for safety features like ABS ,EBD and Air
bags are increasing .So new players are offering new technological safety features as well as
entertainment features like navigation/GPS etc.

Legal
With regulation on pollution becoming stringent and India moving towards Bharat 6, manufacturer not
only have to look into fuel efficiency but pollution control as well eg Volkswagen
External analysis
Threat of the buyers:With increase in purchasing power of the customers, buyers have become choosy
with respect to features and availability. Indian buyers are price sensitive not only with respect to price of
the car but fuel efficiency as well so manufacturers cant increase price which shows power of buyer is
moderate to high
Threat of suppliers:With increase in prices of input such as steel, copper lead and rubber has gone up 2-3
fold, which has impacted the bottom line and sometimes Maruti has no option but to pass it on to the
buyers, this shows threat of supplier is moderate
Threat of New Entrants: The initial investment required to enter into the market is quite high which
causes an entry barrier, such that threat of new entrant is quite low.

Threat of Competitors: The competition is quite fierce every price adjustment by Maruti is
countered by rest of the competition by a further cut which caused price war as well. With
competition closely following price maneuvers of Maruti the threat of competitors is high
Threat of Substitutes: In urban areas Indian public transport might pose some threat to the cars
and in rural areas motorcycle market affect the demand for cars so threat of substitute in urban
areas is low but in rural its moderate

Internal Analysis

Opportunity
Low penetration
rate in India
(12/1000)
Skilled engineering
Society pressure of
owning a car

Threats
Price competition in
industry

Strength
Low costs experience
Fuel efficient products
Reliability
Strong service network
With Maruti offering 16
models it provides the
first time buyers with
great choices
For price sensitive buyers
it is the best choice
With new state of art
facility it has the power to
further reduce cost due to
economies of scale and
state of art facilities
3053 service stations in
1449 cities gives it the
edge
With economies of scale
and reliability in the
brand, Maruti can counter
the price war in the
industry

Weakness
Rising inflation
Employee unions

As indian customers
are price sensitive and
Maruti operates in cost
competitive strategy so
increase in input prices
can offset its
customers
People dont want to
wait too long to get
their cars so if
employee union strikes
halts the production
then it can draw their
customers to
competitors
Rising inflation can
increase the price and
make other
competitors more price
efficient and Maruti
might lose its
competitieve edge

Recommendation
Automobile industry in itself facing stiff competition due to input prices and inflation, so near
future there is not a great threat to Maruti market share but in long run any new technological
development might impact Maruti modus operandi so it can have following steps to maintain its
cost competitiveness
Strategic analysis of value chain
Factorization of future cost
Differentiating with a twist(introduction a high perceived but low cost feature)
As Maruti has low presence in SUV and luxury segment. Maruti can penetrate there with a new
brand and increase its market share.

As input prices are on rise so Maruti must continue investing on R & D which can help it reducing cost
via value engineering.

Should Maruti continue to be a cost leader?


Yes, Maruti must continue to be a cost leader, as it still enjoys a 49% market share in the
industry and with such high volume it can easily maintain its economies in scale and
scope
It is very difficult to operate in the highly competitive industry where the competitors are
ready to pounce on any opportunity to capture share.but other competitors are sailing on
the same boat and increase in fuel prices and input prices impact then simultaneously.
As Indian customers are price sensitive any change in the strategy can affect customer
misallignment

What would the implications be in choosing to be a cost leader?


Choosing to be a cost leader will mean that Maruti must has to look for more frugal
methods of production and increase in input prices cannot be directly pass on to the
customers. On choosing to be a cost leader you have to price your product lower than
competition and should be ready to take a hit on margin.

Given input costs vary over time, how does a cost leader manage profitability given
limited maneuvering space with respect to pricing?
A firm can maintain profitability by following strategies
o Strategic analysis of value chain with increase in cost of Raw Materials
Company must look for avenues where it can cut costs in value chain such as in
distribution, overhead, promotion, advertisements etc
o Focusing on single segment- Expansion to many portfolios may cause increase in
investment and cost, but by focusing on single segment it can avoid additional
costs
o As discussed by Arthur A. Thompson Jr., three strategies exist for a firm when
viewed from the cost lens. They are invest/grow, hold share, cut operating
costs.
o Differentiating with a twist(introduction a high perceived but low cost feature)

What lessons can Maruti learn from its experience with increasing prices in specific
segments? How is this learning likely to affect overall positioning?
The rising prices would indicate that maintaining a cost-leader position is very much
difficult to be a cost leader it has to be innovative not only in its processes but in product
itself. Product differentiation is basis of consumer demand, but if these differentiation can
be matched up with economies of scope it can help in maintain cost and acquiring market
share.
To reduce cost Maruti is investing in state of art facility which can help him to reduce
cost. To have economies of scope Maruti uses same type of engine across Wagonr Ritz
and Swift. Maruti Maruti is also providing cars at higher segment with new dealerships
like Nexa which is giving it a dual positioning (from low cost to high end)