Holden’s history goes back to 1856 with its involvement in saddlery business, in South Australia. The business shifted to the automobile sector in the 20th century and in 1931, Holden associated with GM while sustaining its strong Australian culture. Today, the company is one of seven combined global GM operations that manufacture and sell cars for the Australian market and the whole world. The company operates its activities with support of 270 strong dealers networking across the nation, manufacturing engine and cars in Adelaide, South Australia. Headquartered in Port Melbourne, the company possesses a skilled and professional team that is considered as the company’s assets.
Holden manufactures 51 models with six different body shapes and nine variants at the manufacturing facility situated in Elizabeth, SA, popularly called as Holden’s Vehicle Operations. It is one of the best facilities able to manufacture different models and variants smoothly. The company manufactures small and large vehicles, Cruze and Commodore, and continues to expand its export market. Specialization in V6 engines has given a thrust in exports, and now the company exports V6 engines to Germany, China, Thailand, Korea, Mexico, and Sweden for Buick, Chevrolet, Cadillac, Opel, and Vauxhall vehicles (Holden 2010).
International and Domestic Marketing Environment Analysis
The global financial crunch hit the Australian auto industry severely in 2009 and 2010. During that period, the company decided to overhaul the domestic marketing strategy, introducing a new, small car and innovating technologies that increase energy diversity and fuel economy. In 2010, Australia noted 1.035 million units in total automobile sales. Holden’s selling was approximately 132,923 vehicles, which was 11.2% in 2009. Holden’s market share continued to grow by 12.8 in 2010. The company’s marketing strategy continues building profitability, even though economic conditions are worse; thus, it is necessary to produce quality vehicles that fulfill market requirements and support the powerful Holden brand.
During the previous year, Holden’s Commodore Series continued the nation’s favorite premium car for the 15th successive year, maintaining 49 percent of the premium segment, up by 5.3 percent in 2009. The launching of a newly imported stylish Cruze model proved a tremendous success and received a massive response in the automobile sector. During 2010- 2011, it occupied a position of top five selling vehicles in the Australian market (Holden 2010).
Since the company is planning to launch a small car in the Indian market, it is necessary to study the environment of the Indian auto sector that showed significant growth in the last decade. India’s automobile industry is growing rapidly, but it continues to be a two-wheel country. More than 75 percent of vehicles plying on the roads consist of two-wheelers; they are driven by high fuel mileage, low price, and the ability to maneuver skillfully through India’s heavy traffic. Simultaneously, during the last eight years, the passenger car market has shown growth at a compounded annual rate of 7 percent. In 2007-2008, 1,547,985 units were sold against production of 1,762,131 passenger vehicles. Over the next five years, this number is going to double, approximately by 3 million units per year ( Lang 2010). Figure 1 shows passenger vehicle trends in India from 2001 to 2008.
These days as the market continues to expand, motorbikes face the challenge from a pack of ultra-low-cost four-wheelers: Figure 2 shows the segment Sub-A of cars represented by Tata Motors Limited $2,500 Tata Nano. The popularity of Nano cars covers the difference between $5,000 cars and $1,000 priced motorbikes (see Figure 2). With the Tata Nano and similar cars from Bajaj Auto Limited., the auto industry is moving the auto market downwards the demand curve. The decrease in prices will four times increase the number of potential buyers. While the Sub-A segment gathers momentum, India’s automobile market continues being dominated by passenger cars in segment A for small cars and B for combined segments, which together contribute approximately 66 percent of sales. Small cars like Suzuki, Honda, Hyundai and Maruti, which are traditionally leading in the auto sector, now encounter severe competition from local manufacturers such as Bajaj and Tata. Moreover, Renault has collaborated with local producers such as Mahindra and Bajaj. In Segment D, which is midsize and higher, global players such as Toyota, BMW, Daimler, and Volkswagen have captured the market (Baig 2011).
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The overall passenger cars market in India is likely to increase from 1.7 million vehicles in 2008 to 2.4 million vehicles by 2014, surpassing the markets in France, Spain, Germany, and Italy. The auto industry predicts that by 2012, worldwide car sales will appreciate approximately 11 million vehicles annually, with India’s participation of 20 percent in the increase. At this moment, India will achieve the status of the global leader in the segment of the small car market. The Indian market is developing as the next significant opportunity, and automobile giants all over the world anticipate a natural expansion of their business domain. Indian producers from the automotive component sector view the entire global market change as a tremendous opportunity. With a competitive environment and high skill levels, they expect substantial growth in their business in the next coming years. Major joint ventures acquisitions like VW & Suzuki and Tata & JLR have provided an opportunity to OEMs to expand their ranges and quality, while involving fewer financial risks (Auto Car 2011).
Three leading players such as Tata Motors, Hyundai, and Maruti Suzuki continue to dominate in the passenger car segment; they accounted for approximately 72% of car sales in 2010-11. Considering the robust growth the automobile industry is undergoing, it is clear that manufacturers of the Holden Barina need to show consistent and distinct differentiators to occupy a leading position in the Indian market.
Europe along with the USA and Japan is presently witnessing saturation in the automobile sector. In the past decade, most of the key players have reported significant fall in domestic sales. They also reported that exports in combination with domestic sales are supporting their survival. Decline in sales initiated global auto producers into expanding their operations internationally (Auto Car 2011).
Within five key markets such as the UK, Spain, France, Italy, and Germany which account for more than 72 percent of new car sales in Europe, the trends are moving downwards, with a substantial reduction in the number of auto manufacturers over the last four decades. One of the compelling features observed by various industry specialists concerns the development of specialization in the auto industry. For example, PSA and BMW are two engine manufacturers in the auto industry, and other auto manufacturers would source car engines from them; thus, they could concentrate on branding and distribution of automobiles (Mohnot 2001).
Market Size and Gap Analysis
A growth burst in any industry provides an opportunity to determine market demand on a long term basis. Replacement of motorbikes by small cars carries considerably high margins in a fast growing market. The small car market has grown tremendously thanks to the new rising middle class. Although market penetration continues, the intensity is still low. Passenger cars are still expensive for the majority of Indian buyers, although the Sub A segment and the Tata Nano will meet a significant demand in the automobile market. While the demand of the small-car market continues to grow, local auto players like Maruti and Tata are also sharply pushing into the midsize segment. The demand for small cars is likely to rise fourfold in next five years. The midsize segment of the market represents a fertile scenario, expected to increase 26 percent over the next six years. At present, Hyundai Accent, Honda City, and Maruti Esteem are leading in this segment (Becker 2010).
For becoming a key player in small cars in both export and domestic markets, Holden Barina manufacturers will require new researches in manufacturing technologies to bring down costs and compete with two-wheelers. Thus, this will bridge the demand-supply gap to a large extent. Under moderate economic conditions, the four-wheel passenger market is likely to increase by at least 2.5 million cars by 2015 (see Figure 3). Although India’s vehicle industry is one of the largest in the world, western standards influence the country’s economy. India has already become the second largest exporter of small cars.
While India offers an excellent opportunity, there are other numerous barriers
restricting the growth of the auto industry. One of these barriers is the absence of sufficient infrastructure. Both the number and quality of roads are poor, and ports need to be modified in order to meet the needs of the growing economy. Without constructive improvements, there will be harm to efficiency at the expense of higher costs of production. Besides, heavily congested roads without sufficient parking availability may affect domestic sales. Electricity shortages are another hurdle that can restrict the growth in India. On average, a company can face nearly 15 considerable power breakdowns every month, against five per month in China. Another key obstacle to bridging the demand-supply gap is inflexible labor regulations and labor pool. While enough low cost labor is available, there is a concern from auto companies that skilled labor demand is much more than supply. Moreover, the quantity and quality of skilled labor remains problematic, especially the availability of engineers. Additionally, strict labor laws and the inflexible system cause difficulties, thus enlarging the gap between supply and demand (Venugopal 2009).
Expected Sales and Market Share Analysis
The Indian automobile market is undergoing several changes showing high potential for dynamic growth. The regional average stands at 16.45% for owing a car, meaning that 1.5% of the population presently owns a car. There is a high potential for penetrating untapped markets considering a large number of lower class people stepping into the middle class and increased purchase power of the younger population. Also, with the availability of skilled and cheap labor, India shows capability to act as an export center for auto giants in the Asia-Pacific region.
For a long time, motorbikes and scooters have dominated the Indian market, contributing approximately 74% of the market share. Small cars sales contribute approximately 70 percent of total car sales in India, which shows a tremendous opportunity and expansion of the small car market. Tata Motors Limited has already jumped into the fray by launching the Tata Nano, which is both cheap ($2,500) and fuel-efficient (about 50 miles per gallon). A number of other manufacturers such as Bajaj Auto Limited have already announced to introduce small cars with a similar price so as to compete in this competitive market (Baig 2011).
Launching its small car in the Indian market is the right opportunity for the Holden Barina, owing to the massive and increasing demand. They would be able to capture 10% of the total market share within the period of two to three years.
Currently, India is the leading exporter of small cars to Asian and African markets, but its exports to the European market are also showing steady growth. The Holden Barina will not only take advantage of the domestic market, but increase its exports by establishing facilities in India. From 2002 to 2007, exports of small cars tripled from 72,005 to 198,478 units. According to the Indian Automotive Manufacturers Association, in fiscal year 2006/07, sales of passenger vehicles touched 1.45 million units. In India, the leading manufacturers are Tata Motors, Hyundai, Ford India, Honda, Hindustan Motors, Maruti Suzuki, GM India, Skoda Auto, Fiat India, and Toyota Kirloskar Motor (David 2007).
Most of these auto giants are already planning for further expansion in sales and production in India. For example, Maruti is ambitiously planning to sell 1 million cars annually by 2012. Nissan in collaboration with Mahindra and Renault is already in the field with 400,000 vehicle production capacity. By the end of 2011, Honda had also doubled its production capacity to 100,500 units, with a second facility opened in 2009. Toyota has also declared to invest $350 million in a second production facility near Bangalore to manufacture small, economically priced cars. The production at this new facility began in 2010 with a manufacturing capacity of 100,000 units (Auto Car 2011).
By observing the activities of Indian Automobile players provided above, the Holden Barina needs to produce four million cars annually, which would enable them to capture 10% of the total market share in the small car market segment. For competing in the market, the Holden Barina has to work hard on the pricing strategy similar to the Tata Nano, which is available in the market at the price of $2500.
Market Entry Mode Analysis and Strategies
The Holden Barina will enter the Indian market by incorporating the following features in its small car and product strategies:
Product Strategies and Product Review
The product strategy implemented would be straight product extension, which is producing and marketing cars in another country without any change. This will be an advantage to Barina, since there are no manufacturing changes and additional product designing costs. There are three variants in the Barina range: Holden TM, Holden TK, and Holden LX. Only the Holden TK model would be launched in the Indian market at the first stage. During the following year, the company will introduce Holden TM in the Indian market after analyzing the sales performance of the previous year. Barina will acquire its low pricing by cutting costs on luxuries. The basic Holden Barina does not include front and rear fog lights, antilock brakes, air conditioning or heating system, and air bags. It includes manually operated windows, one single windscreen wiper, manual steering, twelve inches wheels, and plastic and fiber body parts instead of conventional metal and a two cylinder 625cc engine that gives the maximum speed of 70mph. Some of the other salient features of the car are as follows:
1. Comfortable and Stylish
The small car is designed for a family of four; it possesses a roomy compartment with sufficient leg space and a high roof top. Designed with a length of 3.2 meters, width of 1.6 meters, and a roof height of 1.7 meters, with sufficient ground clearance, it can easily maneuver on dense roads in cities and also in rural belts. Its spacious design with rear power train and wheels at the corners permits easy maneuverability, which is an advantage among small cars.
2. Fuel Efficient Engine
The Holden Barina has a rear wheel drive, a two-cylinder, 625 cc, and fuel injection petrol engine consisting of aluminum body. For the first time in India, a two-cylinder gasoline engine will incorporate a single balancer shaft. Its lean design has minimized weight, which facilitates maximum performance per energy unit consumed and provides high fuel efficiency.
3. Ecologically Friendly
Barina emission performance meets all regulatory requirements. It produces less pollution than motorbikes and scooters manufactured in India. The high efficiency engine also certifies that the low carbon dioxide emissions are minimal, thereby offering the twin benefits of an economical transportation with a minimum carbon footprint (Holden 2010).
Marketing Mix Strategies
Judging by the features mentioned in the Product Review provided above, the Holden Barina will be available to consumers with a five-year or 100,000 km warranty, whichever applies first. The company will launch its next brand in the next year, after establishing the Holden brand in the market. The car will display the brand and logo at the front as well as rear of the body; also, its brand and logo will be a significant part of its all marketing campaigns.
The cost price works out approximately USD 2, 425, which is equivalent to 134,625 Indian Rupees; this includes sales tax, excise, import tax, shipment charges, and the cost of assembly. The selling price of the Holden Barina in the Indian market will be Rs 1,49,000, which includes standard accessories, excluding registration fees (Rs150.00), road tax (Rs70.00), number plate (Rs50.00), sales tax (Rs1370.40), and ownership transfer fee (Rs50.00). The final price for the consumer will be Rs 150,690. This competitive pricing will be a strategy of capturing a share from the existing competitors such as the Tata Nano and Maruti Suzuki.
The prime objective of promotional strategies is to create awareness of the brand and concept of this new small car – the Holden Barina. This is one of the economically priced cars, which is successful and popular in the auto market. The company will explore all media such as the Internet, television/radio, and newspapers/magazines at the time of launching the product. Launching plays a crucial role in promotional strategies, as it creates awareness of the product. The company will select a prominent place in Delhi, such as grounds of the India International Trade Fair, where it will introduce the Holden Barina to the market. From June to August, the company will focus its marketing campaign on all prominent Indian Universities during the time of fresh admissions and convocation by product display and banner advertising. Students will be able to try the Holden Barina by driving a car around the campus (Kotler 2001).
The theme for this marketing campaign is “Make Your Future with the Holden Barina.” The reason for this campaign is to attract students, such as fresh graduates or post graduates, who are going to start their careers. Fresh graduates seeking suitable jobs need means of transportation for their movements, but they cannot afford an expensive car. What is more, international students just need an ordinary car, which is economical in being used for a period of two to three years of their student life. This is the cheapest mode of organizing such events or campaigns on the campus.
In September and October, Indians celebrate two prominent festivals. They are Navratras and Deepavali. It is a good opportunity to focus on middle-income families, as during these days, a large number of families plan to buy a new car. Using fliers, mobile communications, and e-mails will acquaint potential consumers with the availability of the product, which will turn into ultimate sales.
In November and December, leading shopping malls organize Mega Sales for Christmas and New Year shoppers, and people wait for such an opportunity. The company can organize some events at shopping malls by product display with attractive schemes. In February and March, most employees receive bonuses, and they are keen to replace their old car with a new one.
The company can organize road shows on every state, which can be in all central locations, for example markets in all states. Moreover, all states organize Automobile Fair every year, and participation in such fairs will bring awareness of the product and promote the selling. Furthermore, the company can approach all Indian banks, as these banks provide the public with cars at a low rate of interest (Kotler 2001).
Place and Distribution Strategies
The Holden Barina will be sold directly to customers through a powerful network of 250 authorized dealers across the nation. Customers can approach these dealers and book Barina. Further 50 sales offices throughout the country will support customers by providing any information they may need. Besides, customers also have a booking opportunity via the telephone (1-800-88-Barina) and through the Internet (www.holdenbarinaindia.com). With the help of this strategy, the company can save overhead expenses and maintain the car price as compared to selling through retailers.
Estimated Budget (for International Marketing Mix Elements)
A marketing expense predictor is useful for the marketing department in achieving targets, and it provides measures when they require changes for implementing the marketing strategy. Expenses are tracked in key marketing categories of a marketing campaign, advertisement, and direct marketing. The budget of marketing is nearly 8.5% of the total sales for the first year, which is 2014. Marketing expenses are high during this year for effective penetration and promotion of the new car. For the next three consecutive years, the budget of marketing expenses will oscillate between three to four percent of the total sales.