The Hindu Business Line : The forgotten `parts' factor

FEW areas of marketing are as little studied in industry — never mind the B-school cases — as that of marketing of components and accessories that underpin and lend vital support to the businesses of vehicles, appliances and other consumer durables. Perhaps the low interest all round is because of the unappealing nature of the beast, maybe because it means understanding the technicalities of the workings of a gadget, which remains a black box to all but the small minority of enthusiasts. Yet as consumers we are all well aware, sometimes painfully, of the experience of getting scarce spare parts for much needed maintenance or repairs to, say, the washing machine, music system, home PC, motor car or motorcycle. One or the other trouble surfaces and disrupts the even tenor of our lives, giving us bouts of bad temper; one wishes then for a far simpler world, totally hassle-free and populated only by fit-it-and-forget-it machines and appliances.

Even to the marketing professionals, the "spares business" or the after-market retail trade (to give it a fancier title) is the forgotten factor of marketing, indeed of business itself. The size of this market, however, is huge and growing, given the fact that several generations of products tend to co-exist in the Indian market. The spare part that makes your broken-down ten-year-old truck run again will remain for a long time to come. There could be many reasons for this state of affairs but a fair generalisation would be that manufacturing companies traditionally had no time for this part of the business.

Rarely were careers built on replacement market sales performance, and it was not unusual for the less effective sales staff and those known to be a bit past it to be assigned to this function. It seldom attracted the front-ranking sales executives or marketing minds. There was little glamour attached to it, and virtually no scope for display and packaging of the person or the product. It had little advertising and sales promotion and even less of making a direct sales pitch to the end-customer. For a long time, even sales performance data was not readily forthcoming; and forecasts and budgets went wildly awry for want of attention as well as deeper understanding. Distributors and dealership managers too gave less attention to it than to the full system, i.e., the parent product of which the components are small bits and pieces, except where a servicing workshop, as with cars and motorcycles, was a mandatory part of the dealership.

The situation was slightly different, as in automotive truck and bus parts, where the manufacturers of the key components were other ancillary units or specialist companies such as those making brake systems, electrical items, shock absorbers, tyres and so on. To them, these components were the main line of production and they had to keep the production lines of their customers fed fully all the time, or run the risk of major disruption. Often, their own retailing suffered from a little lower priority (some would say that's putting it mildly) at the hands of the production people. Until the recent era of higher competition and free markets, even the full-system suppliers' factories were hard put to supply the finished goods (be it trucks or cars or refrigerators) in adequate quantities, so the making of the smaller, "loose change items" (to literally translate the Tamil idiom) took a back seat.

A significant aspect, therefore, in the Indian aftermarket has been the emergence of a `number two' or spurious goods market, which is invariably a direct result of the reduced or sporadic supply of the original and its patchy geographic spread in terms of distribution. Luckily, it appears from industry sources that the share of the spurious element in the market for automobile spare parts has declined slowly but steadily, some say from as high as 60 per cent to now about 35 per cent of the total availability. This is a welcome trend. Simultaneously, however, the average retailer's stocking range has widened as newer models and brands have multiplied dramatically through the late-'90s. Many retailers, according to industry sources, complain about this development, which hurts the profitability and simultaneously increases the complexity of doing business.

One of the few axioms of marketing is that as markets like India develop, the volume share of the smaller towns and semi-rural markets will grow disproportionately faster. At the same time, in any category, so long as the total supply is less than the total demand, distribution to these remoter areas would suffer. Not only that, along with the fakes and look-alikes, second-quality brands made by smaller, regional manufacturers will spring up, attracted by the high margins and growing demand. Over the years, the quality of these brands has tended to approach that of the big-name brands, thus threatening the latter's volumes and margins. An important consumer benefit as a result has been that the established brands have been unable to command the price premia they used to. Many as in automotive spares have not seen any price increase; if anything, the opposite has happened over the past five to ten years. Therefore, profit margins have also declined from the very high levels of a decade ago. As prices used to be revised upwards regularly in the past, in keeping with the cost-plus mindset of those days, and retail margins were sumptuous, the trader found it worthwhile to pile up stocks over the entire range. Some day he was sure to cash in on a shortage or an emergency requirement where the customer would pay a full price. Today, the situation is nearly the opposite. Margins are lower and the material is less scarce, and he too has been educated on the virtues of just-in time deliveries. He, therefore, wants frequent and smaller lots of deliveries, and continue to pay for it at his leisure, usually on 45 days credit.

A new factor in the equation is the desire of the original equipment manufacturers (OEMs) to take charge of the aftermarket as well by supplying even the bought-in components under their own brand names and through their own distribution channels. This means that the vendor of the component now has an internal competitor in the shape of his own bulk customer! The technology gap between the newer models and the more established ones, for example in entertainment electronics or automotive product categories, is such that parts are just not standardised or interchangeable. This creates a series of problems along the supply chain for all older players and multi-franchise dealers — of both keeping adequate inventory of greater variety as well as being able to maintain sufficient timely supplies (for example, for all the older models on the road) so as not to incur the wrath of the end-user. The biggest silver lining is that the need for such a market itself could gradually reduce, as more and more brands with the latest technological sophistication will come with extended warranties, require little care and maintenance, and hardly ever fail. Until such a day comes along, this segment of any consumer durable industry will need some specialist care and attention. The rationale for saying so is quite simple. In a highly competitive market, reputation is the key to sustained consumer buying. That, and the word of mouth that feeds it, are dependent on the quality of the company's after market and service, which brand owners and OEM's can ill afford to ignore.

(The author is a student and observer of markets, people and organisations.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
That sweet thing

The forgotten `parts' factor

Has this happened to you?

The Egg of Columbus

`Eternal' campaign