Cover story Cross-badging

Double Trouble
y tud s e CAs

Cross-badging,or selling the same car with cosmetic changes under different brand names, has not worked so far in India. This case study looks at where the problem lies: is the strategy at fault or the execution?
By N. Madhavan

Executive Summary:

auto bild

VW Vento

Skoda Rapid

n January 2012, Japanese Welcome to the strategy of crossauto major Nissans Indian badging, or selling the same car subsidiary Nissan Motor under different brand names a India sold 1,855 units of its concept new to India, but used for compact car Micra. The same decades in the United States and month French carmaker Europe to boost sales. Renault launched its compact Automobile makers resort to car Pulse in India. In February this cross-badging to save on engineeryear, Micra sales were down to ing, design and product develop608 units, while Pulse sold 420 ment costs, to achieve economies units. of scale, to reduce the lead time in Turn to sedans. In August bringing a new product to the mar2012, Nissans sedan Sunny sold ket, and to widen their product 2,757 units. In September that portfolio and get better returns year Renault launched its sedan, with incremental investment, Scala. By February this year Sunny says Vijay Kakade, Director, sales had fallen to 1,191 units, Automotive and Transportation while Scala sold 620 units. Practice, Frost & Sullivan. It costs And guess what? Nissan and at least `300 crore to develop a car Renault are not even competitors. for India. But cross-badging reThey have been strategic partners quires merely tooling changes an since 1999. Micra, Pulse, Sunny investment of less than `20 crore. and Scala are all products of the It would have cost Renault India a Nissan-Renault alliance. lot more time and money to deOr take German car manufacvelop a compact car, or a sedan turer Volkswagens sedan Vento. It had it chosen not to cross badge sold 3,474 units in India in Nissan models. October 2011. A month later, carIndeed, reports claim Nissan maker Skoda launched its sedan will soon fill a big gap in its product Rapid. Ventos sales have since portfolio it has no compact sports fallen to 1,909 by February this utility vehicle (SUV) by crossbadging the highly successful year. Once again, Skoda is part of Renault Duster. Cross-badging the Volkswagen group Vento and offers a clear value proposition to Rapid are from the same stable. the manufacturers and helps In fact, Micra and Pulse are them expand the market, essentially the same cars, says Nitish Tipnis, Director, with some cosmetic differMarketing and Sales, ences, made in the same `300 Hover Automotive factories, but sold uncrore Nissans master der different names. franchisee in So too are Sunny Minimum cost of India. and Scala, or developing a new car But does Vento and for India it? In India, R a p i d .

Cover story Cross-badging

no fooling the indian consumer

hy has the cross-branding strategy not worked in the automobile market in India? The similarity of the features in cross-branded products, despite the products belonging to different companies and sporting different brands, is an important reason for lower consumer preference. While buying automobiles, do Indians value the product more or the brand? There is no easy answer. Automobile buying is a high-involvement process for the consumer, she is willing to spend time, effort and energy to arrive at the decision. Consumers actively search for information from multiple sources and analyse it, comparing products and brands. The fact that a model and brand from one company looks very similar to another model and brand from a different company will spur the consumer to look for an explanation rather than search for the differences between the two. The differences in price points of the two further accentuate her need for an acceptable explanation. The similarity of the physical features overrule the brand value quotient. If physical features were discernibly different, the brand would act as a decisive force in consumer choice. Cross-branding strategy fails because it takes away from consumers the powerful rationalising argument that justifies their decision to make a choice that entails financial, social and psychological risk. Will consumers be more tolerant of cross-branding behaviour in future? Most likely, yes. Consumer familiarity with the product class and gradual acceptance of this new rule of the game will reduce resistance to the cross-branding phenomenon. At this point in history of automobile industry in India, cross-branding is driven essentially by production and manufacturing considerations than by consumer logic.

Micra sales when Pulse was launched

1,855 units
Combined Micra and Pulse sales today ((Feb 2013)

(January 2012):

1,028 units

Cross branding fails because it takes away the powerful rationalising argument that justifies consumers decision to make a choice
Professor of Marketing, IIM-A

Professor Abraham Koshy,

both attempts so far have been failures. Cross-badging did not expand the market; on the contrary, it shrank. The extent of failure is such that the combined volumes of Scala and Sunnys sales in February this year was 1,811 units, which is lower than the number Sunny alone sold 2,757 units before Scala was launched, says Kakade. The same is true for the NissanRenault products. While some attribute this to the slowdown, which is squeezing the entire industry, a closer look at the numbers shows that the fall in sales of the original brand is far higher than the overall decline in the market. Why has cross-badging not worked? Examples from other countries have established that brand loyalty is critical to the success of cross-badging. But neither Nissan (nor Renault) nor Volkswagen have been around long enough in India to win the fierce brand loyalty that cross-badging banks upon. Worse, while a fully loaded Micra costs `5.61 lakh today, a Pulse with similar features is priced at `5.76 lakh. Few will see sense in paying more for essentially the same car simply to flaunt the Renault label.

68 Business today April 28 2013

Cover story Cross-badging

Who knows the mother brand?

ndia as an automotive market is still evolving. Consumers do not have a clear perspective on different brands, their premium positioning, etc. How many of us know the difference in brand value between a Micra and a Pulse? We are not a country where a customer walks into a multibrand showroom, looks at competing brands and understands the ethos of the different brands. For crossbadging to succeed, manufacturers first need to establish their brands well in the market. Cross-badging in India is being used primarily as a cost optimisation strategy, and to expand the product line-ups. Global original equipment manufacturers (OEMs) are lately appreciating that India is a different market and needs to be treated separately, which has resulted in a lot of iterations of their market strategy. While such iterations, coupled with the market slowdown, are leading to unprofitable operations in India, OEMs are trying to leverage common platforms, engines, etc, to sustain various brands they have established in the Indian market and to compete with the likes of Maruti and Hyundai. This in turn results in cross-badging of products. Cross-badging in India can be used by manufacturers very successfully to increase the life cycle of their products, say, with the premium brand launching the product and the sister brand introducing the cross-badged product when the original product enters the mature stage of its life cycle. This would further help the OEM concentrate on and establish a strong customer base for just one brand product at a time.  (Views expressed are personal)

Sunny sales when Scala was launched

2,757 units
Combined Sunny and Scala sales today (Feb 2013)

(August 2012):

1,811 units

For crossbadging to succeed, manufacturers first need to establish their brands well in the market
Rakesh Batra, National
Leader, India Automotive Practice, Ernst & Young

The same applies to the sedans, Scala and Sunny. Volkswagen did the opposite, pricing Skodas Rapid lower than Vento. But that left Vento customers feeling short changed, apart from lowering the resale value of both cars. There may have been some gaps in communication too. Crossbadging offers clear value to car manufacturers but what about the customers, says Abdul Majeed, Partner and Leader- Automotive Practice, PwC. It is very important to communicate the value proposition to the consumer. Others claim the Indian market is not yet mature enough for this particular strategy. Indian customers have not evolved to a level where they understand the nuances of cross-badging, says B.V.R. Subbu, automotive entrepreneur and former President, Hyundai Motor India Ltd. Not only is the Indian consumer primarily value driven, but the auto market is also highly competitive with well entrenched and aggressive players. There are no shortcuts like crossbadging to brand building, large investments are essential. It is

70 Business today April 28 2013

Cover story Cross-badging

financially prudent and more have done individually. Subaro effective to spend heavily on took care of the engineering, developing one brand, chassis and power train Vento sales before adds Subbu. He while Toyota handled the Rapid launch (October 2011): feels Renault design. It was not a case units and Nissan of taking an existing would have model and cross-badgCombined Vento and Rapid sales today (Feb 2013): fared better if ing it. In contrast, they had General Motors in the US has tried cross-badging all common too frequently and is paydealerships ing for doing so. Excessive and service centres cross-badging is one of the factors and had sold their respective brands that contributed to General Motors under the one roof rather than bankruptcy, says Kakade. ~ cross-badging each others prodthough long practised, has not alucts. It is a strategy that is best Why do you think the cross-badgways been a success. In recent avoided in India, he adds. ing strategy fails in India? Write to times the only instance of cross Nissan itself is alive to crossbtcasestudies@intoday.com or post badging working is that of the badgings limitations. Crossyour comments at www.businesstoday. Subaru BRZ and the Toyota Scion badging can at best be a temporary FR-S, both launched in the US this in/casestudy-cross-badging. Your strategy to enhance product line-up year. But there were specific reaviews will be published in our online and make dealerships profitable, sons for this. This sports car was edition. The best response will win a but if used over a long period of developed jointly by Subaru and copy of the Harvard Business School time, it will lead to brand erosion, Toyota Motor Co, thereby producPress pocket mentor. Previous case says Toshiyuki Shiga, COO, Nissan Motor Co. ing, according to auto experts, a studies are at www.businesstoday.in/ Globally too, cross-badging, better vehicle than either could casestudy.

3,474

3,280

Best of the lot

BT receives scores of responses to its case studies. Below is the best one on EID Parry (March 3, 2013)

Sanjay Gupta [px11sanjayg@iimidr.ac.in]:

Your case study on EID Parry shows how the company has created shared opportunities for all stakeholders farmers, intermediaries, society at large as well as the company itself. EID Parry looked at opportunities through the lens of shared value which led it to take strategic initiatives, resulting in innovative approaches such as cashless farming. By redefining productivity in the industry value chain, EID Parry could garner a smooth supply of cane, and reap a high return on investment. Not only did EID Parry profit, it also laid the foundations of a new sustainable business model. The existing scenario also played a significant role in creating EID Parrys business model. Government regulations relating to command area have had a major impact on industry dynamics. They created fear in the minds of farmers of being exploited by sugar manufacturers and discouraged them from growing sugarcane. They also restricted the operations of the sugar manufacturers. Within the contours of the regulations, EID Parrys model has created a perfect ecosystem, built on interdependence of farmers and the company. In the future, I foresee two possible developments. The farmer-sugar manufacturer interdependence may get diluted. There may even be disruption in industry dynamics leading to a reconfiguration of the elements making up the value chain. This could well happen if sugar manufacturers shift their priority from farm development to efficient procurement.
Sanjay Gupta wins a Harvard Business School Press pocket mentor

72 Business today April 28 2013