Executive Summary: 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?
In January 2012, Japanese auto major Nissan's Indian subsidiary Nissan Motor India sold 1,855 units of its compact car Micra. The same month French carmaker Renault launched its compact car Pulse in India. In February this year, Micra sales were down to 608 units, while Pulse sold 420 units.
Turn to sedans. In August 2012, Nissan's sedan Sunny sold 2,757 units. In September that year Renault launched its sedan, Scala. By February this year Sunny sales had fallen to 1,191 units, while Scala sold 620 units.
And guess what? Nissan and Renault are not even competitors. They have been strategic partners since 1999. Micra, Pulse, Sunny and Scala are all products of the Nissan-Renault alliance.
Or take German car manufacturer Volkswagen's sedan Vento. It sold 3,474 units in India in October 2011. A month later, carmaker Skoda launched its sedan Rapid. Vento's sales have since fallen to 1,909 by February this year. Once again, Skoda is part of the Volkswagen group - Vento and Rapid are from the same stable.
In fact, Micra and Pulse are essentially the same cars, with some cosmetic differences, made in the same factories, but sold under different names. So too are Sunny and Scala, or Vento and Rapid.
Welcome to the strategy of crossbadging
, or selling the same car under different brand names - a concept new to India, but used for decades in the United States and Europe to boost sales.
"Automobile makers resort to cross-badging to save on engineering, design and product development costs, to achieve economies of scale, to reduce the lead time in bringing a new product to the market, and to widen their product portfolio and get better returns with incremental investment," says Vijay Kakade, Director, Automotive and Transportation Practice, Frost & Sullivan. It costs at least Rs 300 crore to develop a car for India. But cross-badging requires merely tooling changes - an investment of less than Rs 20 crore.
It would have cost Renault India a lot more time and money to develop a compact car, or a sedan had it chosen not to cross badge Nissan models."
Indeed, reports claim Nissan will soon fill a big gap in its product portfolio - it has no compact sports utility vehicle (SUV) - by crossbadging the highly successful Renault Duster. "Cross-badging offers a clear value proposition to the manufacturers and helps them expand the market," says Nitish Tipnis, Director, Marketing and Sales, Hover Automotive - Nissan's master franchisee in India.
But does it? In India, 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 Sunny's 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 Nissan-Renault 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 Rs 5.61 lakh today, a Pulse with similar features is priced at Rs 5.76 lakh. Few will see sense in paying more for essentially the same car simply to flaunt the Renault label.
The same applies to the sedans, Scala and Sunny. Volkswagen did the opposite, pricing Skoda's 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 financially prudent and more effective to spend heavily on developing one brand," adds Subbu. He feels Renault and Nissan would have fared better if they had common dealerships and service centres and had sold their respective brands under the one roof rather than cross-badging each other's products.
"It is a strategy that is best avoided in India," he adds. Nissan itself is alive to crossbadging's limitations. "Crossbadging can at best be a temporary strategy to enhance product line-up and make dealerships profitable, but if used over a long period of time, it will lead to brand erosion," says Toshiyuki Shiga, COO, Nissan Motor Co.
Globally too, cross-badging, though long practised, has not always been a success. In recent times the only instance of cross badging working is that of the Subaru BRZ and the Toyota Scion FR-S, both launched in the US this year. But there were specific reasons for this. This sports car was developed jointly by Subaru and Toyota Motor Co, thereby producing, according to auto experts, a better vehicle than either could have done individually. Subaro took care of the engineering, chassis and power train while Toyota handled the design. It was not a case of taking an existing model and cross-badging it. In contrast, General Motors in the US has tried cross-badging all too frequently - and is paying for doing so. "Excessive cross-badging is one of the factors that contributed to General Motors' bankruptcy," says Kakade.
NO FOOLING THE INDIAN CONSUMER
Cross branding fails because it takes away the powerful rationalising argument that justifies consumers' decision to make a choice: Professor Abraham Koshy
Why 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.
Professor Abraham Koshy, Professor of Marketing, IIM-A
WHO KNOWS THE MOTHER BRAND?
For crossbadging to succeed, manufacturers first need to establish their brands well in the market: Rakesh Batra
India 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)
Rakesh Batra, National Leader, India Automotive Practice, Ernst & Young
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