Battle luxurious

Jil Sander, ace German fashion designer, once said there can be luxury in simplicity. Be sure, she wasn’t talking about the luxury car industry where cutting-edge designs and enchantingly complex specifications rule. And price, interestingly, is not always a big deal. The business of luxury cars is a distinct affair. And that’s precisely why luxury carmakers do not enjoy many of the luxuries of the mass car market, like wooing consumers with fuel-efficient products. The game is all about loyalty, high-fidelity branding and harpoon-sharp marketing.

And that’s perhaps why not many were surprised last year when German carmaker Audi became the largest luxury car seller in India. Audi India, an arm of Volkswagen Group, set shop in this market only in 2007. And to clinch the top slot, Audi beat compatriot Mercedes Benz, which started its India operations in 1994 and ruled this market over a decade, followed by another German big-ticket carmaker BMW, which entered this country in 2006.

According to industry reports, Audi sold an estimated 10,002 units during January-December 2013 while Mercedes sold 9,003 units, witnessing a year-on-year growth of 11 per cent and 32 per cent, respectively. During calendar 2013, BMW sold 7,327 vehicles. “We were the last to enter India, yet we achieved leadership two years before target,” says Joe King, Head, Audi India. “We are also especially proud to have achieved this feat in a challenging year.” The last two quarters of 2013 provided strong competition from Benz and BMW. Mercedes-Benz outsold Audi in the final two quarters of last calendar. In the first quarter of 2014, Audi sold 2,740 units while Benz cars found 2,554 buyers.

A growing market The Indian luxury car market is still evolving. Of the total of around 2.5 million cars sold in India, only about 35,000 units are luxury car. “This accounts for only about 1.5 per cent penetration of the total industry volumes,” says Tomas Ernberg, managing director, Volvo Auto India, a luxury carmaker. In comparison, the global penetration is more than 10 per cent. In Europe alone, luxury cars account for about 30 per cent of the total cars sold.

That said, the luxury car market is a fast growing segment. “In the past few years, the market is growing at a rapid pace,” says Rakesh Batra, Partner and National Leader, Automotive Sector, EY, India. “Overall, the segment is growing at almost 15 per cent year-on-year. Sales are driven by new vehicle launches in the lower and SUV segments.” Industry experts estimate that by 2020, luxury car penetration in India will grow to 3 per cent and the luxury car volumes will touch 1,50,000 units in the total industry volumes of about 5 million units. That means an almost five-fold increase.

To tap this huge market potential, luxury automakers are expanding their production portfolios and increasing their distribution networks extensively. “The Indian market poses myriad challenges in terms of diversity of regions, customer preferences as well as business opportunities,” says Eberhard Kern, Managing Director and CEO, Mercedes-Benz India. “Every market within India has different business requirements and requires separate strategy for growth.” Kern adds that they have been able to customise their services to suit the demanding Indian customers and keep innovating and listening to what customers want from a luxury automobile brand. “This creates a lot of value in the system,” says Kern.

The strategies Unlike in the volume vehicle market, strong marketing and branding is key in winning market share in the luxury market. Batra says a right mix of marketing is very important in India in improving the sales of luxury cars. “Unlike Europe and other developed nations where brand matters a lot, in India, customers do not really stick to a particular brand in the premium segment.” He adds that customers do look for a premium brand, but inside that they won’t really differentiate it. “On the other hand, they look for features and functions. So companies really need to communicate the brand value and thus create a brand pull in the premium segment,” he adds.

Audi seems to have realised this truism. “Young customers in India are pretty value-sensitive,” says Joe King. “If a young Indian buyer sees values of features and performance in the product offering, he/she is willing to pay a higher price for the same. We have seen customers that have jumped price bands to opt for the Audi A4 and Audi Q3.”

Mercedes Benz India agrees to this strategy of creating brand awareness and sustaining brand value. And it’s revving up efforts in this direction to win leadership in the segment. “We have kept innovating our marketing campaigns to suit the positioning of the product and creating a strong connect with the brand for our entire product range,” says Kern. Citing the example of company’s new compact sedan CLA 45 AMG, Kern says “new-age marketing campaigns help in winning the mind space of our potential customers. With the launch of ‘Ah My God’ campaign and brand engagement for our new CLA 45 AMG, all of it for this year was sold out prior to the launch of the car.”

The big three are fighting it out by lowering the entry price barriers to include young and new customers. BMW started it with the launch of BMW ‘X1 a few years ago which started at a price of ₹22 lakh. Mercedes pioneered in bringing a hatchback into the luxury market with their A class. Latest in this category is the smallest sedan from the brand of four rings, Audi A3, which starts at ₹23 lakh. “With the launch of A3, Audi has already crossed the magical number 10,000 with one more month left in 2014,” claims King.

Another strategy followed by the warring players is expanding networks across the length and breadth of the country. This year alone, Mercedes has inaugurated 14 outlets in various parts of the country and opened dealerships in markets such as Kanpur, Bhubaneswar, Raipur and Bhopal. Benz has also consolidated market presence in existing markets such as Mumbai, Bangalore, Chandigarh, Surat and Karnal.

BMW is also expanding its dealer network across India.

Currently, BMW India has 37 sales outlets in Indian. By end of 2015, the car maker is planning to aggressively expand its dealer network by increasing the number of outlets to 50 across major metropolitan centres and emerging cities in India. “With delighted customers, strong partners and sustainable leadership, we want to be the leader in the luxury car segment,” says Philipp von Sahr, President, BMW Group India. For customers in tier ii, tier iii cities that are not covered by the existing dealer network, the auto maker has set up mobile showrooms. Rival Audi too is planning to expand its dealer network in the country next year.

A premium race The battle for higher market share and leadership among luxury car makers in India will only grow in the years to come. The immense market potential owing to the rising purchasing power of consumers, growing aspiration for luxury brands among the upper middle class and evolving lifestyles are making India a lucrative market for the premium carmakers. “There are over one million high networth (HNI) individuals in India,” explains EY's Batra. “There lies a huge virgin market untapped.” According to a report by KPMG and industry body Assocham, the ultra high-net worth households in India is likely to grow at a compounded annual growth rate of 27 per cent through 2017-18. Also, apart from the traditional luxury customers, rising income levels at a younger age and increasing aspirations have created a new segment of potential luxury buyers.

The carmakers realise strategic planning is necessary to tap this fresh market. BMW’s von Sahr says the company has set “very high standards in service quality and customer care.” The company has other important strategic moves like the introduction of BMW i brand (brand of electric cars and mobility services,) in India next year with BMW i8. “As a prequel to this, BMW India recently launched the all-new BMW 7 Series Active Hybrid in India,” says von Sahr.

On the other side, Mercedes is in the final stages of doubling its current production capacity to 20,000 units. The company is expanding its product portfolio and is confident of doubling current sales volume in India by 2020.

It is yet to be seen whether these strategic moves will help the number two and three players to topple Audi the leader, which is ready to put up a fierce battle to stay on top.

“We will continue to focus on our four strong fundamental pillars, such as expansion of product portfolio and service offering, expansion of our dealer network, progressive customer connect initiatives, along with a strong team. We intend to launch 10 new models in the next 12 months,” says Audi India’s King.

It’s going to be a car race that India simply cannot afford to miss.

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