University of Technology, SydneyMarketing Plan: VW Lupo

Marketing Plan

Introduction of the VW Lupo in India

University of Technology, Sydney

Faculty of Business

School of Management

Prepared by:

Prateek P. Chakravorty, 10091155

Fanny Febrian, 10103632

Simon Rehbach, 10085482

Werachai Rotjanaaree, 10110005

Tanim H. Khan, 10097499

as part of the requirements for

“24746 Marketing: Concepts & Applications”

Syndey, October 2003

Marketing: Concepts and Applications- 1 -

University of Technology, SydneyMarketing Plan: VW Lupo

TABLE OF CONTENTS

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY

2. INTRODUCTION

3. SITUATION ANALYSIS

3.1 Business Environment

Political Environment

Economic Environment

Socio-Cultural Environment

Technological Environment and Infrastructural Base

Legal Environment

3.2 Market Analysis

The Product Market

Market Forecast

Market Characteristics

Target Market in India

3.3 Competitor Analysis

Maruti Udyog Limited (MUL)

Hyundai Motor India

Tata Motor

Other competitors

Other potential competitors

Substitutes

The likely actions by competitors

3.4 Organisation Assets and Skills

Organisational Structure

Brand Reputation

Volkswagen Asia Pacific

Production

Marketing Capabilities

Technical Capabilities

Human Resources and Training

Key Markets and Customers

3.5 Market Five Forces Analysis

Industry competitors

Threat of New Entrants

Threat of Substitutes

Bargaining Power of Customers

Bargaining Power of Suppliers

3.6 Portfolio Analysis

3.6.1 Market Attractiveness

3.6.2 Competitive Advantage

3.6.3 Portfolio Analysis and Strategic Marketing Plans

4. SWOT ANALYSIS

4.1 Summary of SWOT Analysis

4.2 Implications of SWOT Analysis

5. EVALUATION OF ALTERNATE MARKETING STRATEGIES

5.1 Market Entry Strategies

5.2 Generic Marketing Strategies

5.3 Market Positioning

5.4 Marketing Mix Strategies

Product

Pricing

Distribution

Promotion

5.5 Preferred Strategy

6. OBJECTIVES

6.1 Organisation Mission and Corporate Strategy

6.2 Company Product and Market Objectives in India

7. RECOMMENDED MARKETING STRATEGY

7.1 Target Markets and Market Positioning

7.2 Marketing Mix

7.2.1 Product and Service

7.2.2 Place (Distribution)

7.2.3 Price

7.2.4 Promotion

8. ECONOMIC EVALUATIONS

8.1 Planning Assumptions

Market sizes

Market shares

Prices

Revenues

Cost

Marketing Budget

8.2 Forecast Sales

Forecast Profit and Loss Statement

Critical points

8.3 Forecast Profitability / Break Even Analysis

8.4 Sensitivity Analysis

9. IMPLEMENTATION AND CONTROL

9.1 Formal Project Plan for Implementation

9.2 Monitoring of Action Plan

APPENDICES

Appendix 1Currency Exchange Rates

Appendix 2Political System in India

Appendix 3Demographic Environment

Appendix 4Foreign Direct Investment

Appendix 5GDP and Real GDP growth

Appendix 6Development of Inflation in India

Appendix 7 Exim Policy:

Appendix 8 Organisational Structure of the Volkswagen AG

Appendix 9 Production Facilities Worldwide

Appendix 10 Porter’s Five Forces

Appendix 11Entry and Exit Barriers

Appendix 13 Market Attractiveness

Appendix 14 Competitive Advantage

Appendix 15 BCG Matrix

Appendix 16 Portfolio Analysis and Strategic Market Plans

BIBLIOGRAPHY

END NOTES

1. EXECUTIVE SUMMARY

This marketing plan evaluates the launch of the Volkswagen Lupo, a small passenger car in the Indian market. The Lupo car offers high comfort and technology usually known from bigger cars.

First, the business environment in India is analysed where the Indian political, economical, social, technological and legal environment is scanned along with market and competitor analysis. The analysis shows India as a growing market with high sales potential. However there are three major competitors in the market; namely Maruti, Hyundai and Tata Motor along with other car companies which pose threats to Volkswagen. Other challenges in entering the Indian market would be disadvantages of high production cost, the late market entrance and the entry without a business partner (joint-venture).However, the organisational assets of Volkswagen, such as brand image and solid company fitare likely to offset some of the uncertainties associated with the entrance in the Indian market. The fact that a Volkswagen group subsidiary; Skoda, is already in the Indian market promises the possibility of sharing knowledge and experiences and the high technology support Volkswagen has achieved through its worldwide operations is an added advantage of the company. Summarising the overall strengths, weaknesses, opportunities and threats, the conclusion would be that Volkswagen’s situation is quite favourable in India.

A corporate mission statement with product and marketing objectives has been formed. Different alternative marketing strategies have been evaluated and a preferred final marketing strategy is recommended. This strategy involves introduction of two different versions of the Lupo car particularly for the middle and high-income customer segment. Marketing and distribution strategy would includesponsoring events, making use of well-known celebrities in advertisement campaigns and using different types of media for the promotion along with creation of wide distribution network all over the country to promote and sell the car. Further forecasts of the economic environment, sales numbers and a sensitivity analysis is done to analyse the result of the marketing campaign and finally an action plan along with a way to monitor its implementation is proposed which summarises the major steps necessary to introduce the Lupo car in India.

2. INTRODUCTION

Volkswagen is a German car company founded in 1937. Ever since, it has been one of the very well reputed international car brands and has its branches in many countries all over the globe. Good quality is almost synonymous to Volkswagen and customer satisfaction is one of the top priorities of the company. The company wants to expand its market and enter into different niches all over the world.

India is one of the largest economies in the world with a population over one billion. Its strategic location gives access to the vast domestic and South Asian market. Its largely and rapidly growing consumer market constitutes a very attractive market for branded consumer goods. Besides its growing market; it is one of the largest sectors in the world spanning over almost all the manufacturing and related activities. Cheap, abundant yet skilful labour and a very good quality and reasonably priced raw material supply market are its characteristic features. The recent reforms in the Indian fiscal and monetary policies have been a welcome change and have made India a very investor friendly market for the foreign investors.

The automobile industry, one of the core industries here has also undergone metamorphosis particularly in the last decade with the advent of new business and manufacturing practices in the light of liberalization and globalization. Owing to this dynamic and substantial market conditions, our company, the Volkswagen AG, has decided to capitalise on these opportunities oozing out of the Indian markets and position themselves in a relatively new potential market by launching itself in the commercial small car market segment through its model Lupo which would be specially targeting its marketing efforts towards the urban car buying segment.

3. SITUATION ANALYSIS

3.1 Business Environment

Political Environment

Australia, a union of 6 states, is a Sovereign, Secular, and Democratic Republic with a Parliamentary system of Government. More detailed information about the political system in India can be found in Appendix 2.

The Indian National Congress Party had been reigning over the Indian political scene over the majority period since independence which happened on 15th August, 1947. However during the last decade there have been a number of changes in the parties ruling the government. During the period between1990-2002 there has been growing instability in both the Centre and in some of the states. Though the single largest and the ruling party since 1998 has been the Bhartiya Janata Party (BJP); it has not attained single majority. It came in power in coalition with other parties as a result of which there is constant threat to the stability and reliability of the existing government. Also India is infamous for its bureaucracy, corruption and too much paper work which is a fundamental characteristic of the Indian Government.

Economic Environment

Australia is a mixed economy composed of public and private sector investment. This kind of economy strikes a delicate balance of good business: profitability and social welfare. Since the 1980’sAustralia has pursued microeconomic reform, having realised the importance of competition greater efficiency in various industries and a greater the flow of investment into the economy to ensure future prosperity. As the economy of India was stagnant since its independence, the new leaders felt the need to reform the Indian economic policies. From the 1950s both private and public sector were encouraged to invest in the automobile sector. In the 1970s things became to change as the control of the state government was reduced. However, change took time to germinate and the government policies gradually became less stringent. New firms were allowed to enter all segments and existing firms brought out new models. For 40 years the icons of mobile India were limited to a handful of cars and bikes. The 1980s saw a revision of the Indian auto policy and the 1990s witnessed the birth of choice for Indian auto buyers. Today the industry hums to the tune of customer. The market is now driven by a legislation that no longer puts a cap on the consumer’s power to choose.

At the moment there are 13 car manufacturing companies in India and the industry has an investment of over US$ 12.5 billion and employing over 500,000 people directly and indirectly which means that a lot of people in India are now dependent on the automobile sector for their living(Chaturbedi).

India’s economy in automobile started to take a new look in the early 1990s and this change has a positive impact on the overall economy of India and resulting in the growth of GDP. During the 1990s the GDP has increased 5.7% compared to that of 1980s and increase 6.1% compared to the last decade and from the 1998, the GDP growth is in an increasing trend (See Appendix 5) (Tradewatch).

This positive trend of GDP growth implies that the introduction of the newly reformed automobile policy is contributing in a positive way to the overall GDP growth of the country. At the same time the inflation is almost constant since 1998, which is a favourable feature for the foreign manufacturers and will encourage them to invest in India (see Appendix 6, “Development of Inflation in India”) (Tradewatch).

Socio-Cultural Environment

Australia is a country best known for its long lasting tradition and rich cultural heritage. Society, values, family and relationships is placed above all. They play a vital part in determining the consumer and business behaviour.

India is a secular country which accepts all religions and has a vast number of religions- Hinduism being the single major religion of people all over India. Festivals, customs and ceremonies also play an important role in the lives of Indian people. The main festivals being Diwali, Dassera, Christmas, Ganesh Chaturthi, Id, Carnival, Baisakhi, Easter, Onam, Pongal and many others which are celebrated all over India.

The period during festivals like Diwali and Daserra are considered auspicious by the Hindus and it is observed that many people buy luxury goods such as cars, houses and other durables during this time. Marketers must therefore implement their intensive marketing efforts more during these times to attract potential buyers.

Popularity of films, music, dance and sports is another important characteristic of the Indian culture. Eminent film stars and sport personalities are greatly idolised by people especially the youth and they have quiet an influential impact on them. Marketers could use them in their promotional and advertising campaigns effectively.

Another significant feature of the Indian culture is the presence of variety of languages. There are at present 18 official languages spoken in India with around 1652 dialects. Hindi is the official and main language understood by everybody. Even though India is the country with the largest number of English speaking people in the world, it is only 3% of the Indian Population that speaks English. Firms must take note of the various national and regional languages to effectively communicate and reach to its target audience.

Education level and literacy level will directly impact on the consumer demand as it creates brand awareness and product education. Also it is a vital statistic that helps in formulating the promotional strategy on the target audience. In India over the years the literacy level has considerably improved from 18% in 1951 to 65% in 2001 which is a significant improvement. Some states like Kerala and Goa have 100% literacy rate.

Another important criteria business firms that cater for specific customer segments is the structure of various age groups in India. At present (2003), the age composition is as follows.

Up to 14 years - 32%

15-59 years - 60%

60 years and above- 8%

Technological Environment and Infrastructural Base

The Rudd Government has realised the importance of technology and has given it top most priority in the recent development plans. The automobile industry has also been given more importance than it was given before and the Indian Automobile market is gearing towards having international standards to meet the needs of the global automobile giants and becoming a global hub. Huge investments are made to remain competitive through cost advantage and product quality control.

The government has increased its Research and Development fund for the automobile industry to above Rs. 1400 crores (approximately AUD 552 million) for eight years. All laboratories in India such as BHEL, have started developing cell technology as alternative fuel which will certainly boost up the auto industry.

Also the Indian Automobile Component Industry has been making rapid strides towards achieving world class Quality Systems by imbibing ISO 9000 Quality Systems. Today, India exports engine and engine parts, electric parts, drive transmission and steering parts and breaking and suspension parts among others thus providing quality raw materials and manufacturing components base in the country itself which would otherwise had to be imported from other countries (Capexcity).

It must also be noted that the Indian Government lays special emphasis on controlling environmental pollution and promoting safety standards. The government imposes tough emission norms that will induce refiners to invest over AUD 11 billion in the next eight years to reduce emission from vehicles. The automobile industries must keep in mind that it should not violate the environmental laws imposed by the government otherwise they would be heavily penalised (Capexcity).

Information Technology also plays a crucial part in the automobile sector. Some players are working towards development of efficient production systems that control the entire production process with high precision and accuracy.

India, in all her diversity, encompasses one of the largest highway and road network on the planet second only to America. In recent times the government of India laid great emphasis on the development of adequate road network in the country. The total length of roads in the country exceeds 3.01 million kilometres. The labyrinthine network consists of 34608 km of national highways, 128622 km of state highways and informal network running about 2737080 km (Manipur Online, 2001).

The Ministry of State for The Road Transport & Highways has undertaken the task of developing National Highways in India and has entrusted National Highways Authority of India (NHAI) the task of implementing the most ambitious National Highways Development Project (NHDP) – comprising of the Golden Quadrilateral and North-South & East-West Corridors, NHAI is also responsible for development of highways connecting major ports. Also the Union government intends to develop rural roads in all the districts of the states. These projects may cost more than Rs 25,000 crores (nearly US $6 billion), and would have to be developed with the private sector's participation (Indiacore, Projectstoday).

Apart from the strong industrial and infrastructural base in India, there exists a sophisticated financial and marketing sector as well. There is also a vast availability of skilled manpower and professional managers at competitive costs and India can boast of one of the largest pool of scientists, engineers, technicians and managers in the world.

Legal Environment

The auto policy of 2002 narrates that from now on India will focus not only on manufacturing cars, but also will extend its focus to export of those cars. The foreign direct investment (FDI) policy has been relaxed and the car makers will now require minimum of US$ 50 million investment for setting up a project in India as opposed tominimum mandatory investment of US$ 400 million at the beginning, which came down to US $ 250 million and later to US $ 100 million. Under new policy this amount has been fixed. The ultimate aim of this new auto policy 2002 is to instigate the manufacturer to produce small cars for both domestic and foreign consumption. This new policy also discourages the use of old cars to increase the demand of newly developed environmental friendly small cars and thus attract as much as foreign manufacturers as possible (Business Standard).

There are also several limitations on importing of cars. They particularly attract high duties (see “Role of Tariffs and Regulation” in the following section 3.2) and have to comply with the Indian Export Import(EXIM ) policy(see Appendix 7 “Exim policy”).

3.2 Market Analysis

The Product Market

The VW Lupo is classified under the small car segment in the Indian market. The Indian small passenger car market is in between growth and maturity stage of the product life cycle. The most popular small cars in India are the Maruti 800, Tata Indica and Hyundai Santro. The market size of this segment has increased from 572,423 units in 2000 to 634,484 unit in 2002 (Maruti and IPO). At present, the market leader in this segment is the Maruti 800 with 28% market share. Small cars are popular in the Indian automotive market because of its convenience to drive and park in Indian traffic conditions. Other reason for their popularity is that they are more affordable and economic in terms of the cost of ownership (Maruti and IPO).