Financial Daily from THE HINDU group of publications
Saturday, Jun 29, 2002
Marketing - Advertising
Rs 20-cr ad spend to add sting to Scorpio
CHENNAI, June 28
MAHINDRA & Mahindra Ltd intends to spend Rs 20 crore in backing the `Scorpio' brand, the company's new multi-utility vehicle, but has decided against a `brand ambassador'.
"They are not worth it," Mr Rajesh Jejurikar, Vice-President-Marketing, told Business Line today. Brand ambassador, stars who endorse a brand, can cost anywhere between Rs 5 crore and Rs 12 crore per year.
M&M officials believe that a brand ambassador is really not necessary, if the product is good.
However, the company will spend money on "communicating the brand", through TV commercials and customer and media meets, company officials said at a press conference here today.
While the company is now producing around 500 vehicles a month, it proposes to ramp up production soon. The plant that has been set up to produce the Scorpio can manufacture 2,500 vehicles per month.
Even according to M&M officials, the total market size of MUVs in India is about 4,000 vehicles per month. Would the company be able to sell capacity-level volumes?
Responding to this Mr Alan Durante, Executive Director & President, Automotive Sector, M&M, observed that the market usually grows when new vehicles come in. He said that the Scorpio would eat into the mid-size car segment too.
Company officials were reluctant to disclose either the targeted sales volumes or the level at which the `Scorpio project' would break even, but said that a financial restructuring helped bring down the project cost.
The total cost of the Scorpio project is estimated at Rs 550 crore.
But the company set off Rs 150 crore of this cost against the credit in the share premium account (part of the reserves). Therefore, technically, only Rs 400 crore needs to be recovered from sales.
Again, some of this would be recovered through sales of M&M's other vehicles, Bolero and Armada, because the company proposes to produce these vehicles on the Scorpio line in the years to come.
Asked to comment on `R&D spend' in M&M, Mr Durante said that it was no longer necessary to put in money in basic research.
Any component, as hi-tech as desired, could be sourced from anywhere in the world.
"You must ask companies how many people they have in the R&D department, not how much they spend on research," Mr Durante said, adding that M&M had recruited 200 people for the Scorpio project.
Many of these were trained in Japan and Korea during the last four years, he said.
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