R is the key clog of the success wheel of Hyundai Motor India—right product, right customer focus, right pricing, right marketing plan, right research and development, and right timing—on which it has ridden its stupendous success story in this marketplace. And the swishy steel and glass structure housing its India headquarters in the Capital’s busy Mathura Road, and the sprawling three-lakh-unit facility in Chennai—the largest plant outside of its home market—are testimony to the vrooming success and the steely resolve that this car marketing machine has set for itself in this marketplace—the world’s eleventh largest car market which has for the first time, crossed the one-million-mark in calendar 06. This steely tenacity is further exemplified in its doggedness to be the No 1 car marketer by cornering around 25 percent of the market by the turn of 2010 from the current cachet of No 2 with 18.5 percent market share. In calendar 06, it has nearly met its target of selling three lakh units (to be precise 2,99,513 cars, including exports) against 2.5 lakh units it sold last year netting Rs 8,540 crore in revenues.
Come 2010, this successful marketer wants to be the No 1 car brand in the country, that is slated to become the world’s seventh largest by 2016. And in its immediate list of priority to achieve the coveted No 1 cachet is a three-pronged strategy on which it is frenetically working now. The 2010 strategy includes doubling its capacity to six lakh units from the current three lakh units by commissioning a new plant at an investment of Rs 2,429 crore; launching at least two models annually and possibly a new, cheaper entry-level model to take on the Rs one-lakh car from the Tatas; and giving a further thrust to exports—all to unseat incumbent leader Maruti Suzuki by ramping up its market share from the current 18.5 percent to 20 percent by the end of this year and further taking it to a smart 25 percent by the end of the decade.
This resolve is based on the assumption that the domestic car market, which for the first time has crossed the sensitive one-million-mark by selling 10,22,793 cars in calendar 06, would grow by around 60 percent in volume terms by the end of the decade to touch around 1.6 million units per annum. To achieve this, Hyundai is also planning to jack up its reach to another 100 more cities besides increasing the dealerships to over 250 from the current 170. Currently, 60 percent of its sales come from the top ten metropolitan citiess.
“We are doing everything to achieve our target of becoming the No 1 car marketer by cornering over 25 percent of the domestic car sales by the turn of this decade. We have been meeting our targets all these years and will be able to do an encore of our success story in the coming years too,” says the Hyundai Motor India managing director Heung Soo Lheem.
The Rs 8,540-crore Hyundai (FY06 turnover) is one of the fastest growing car brands and currently markets 35 passenger cars models including variants in seven segments—the flagship Santro in the B segment, Getz in the B+segment, the Accent in the C category, the Verna C+ segment, the Elantra in the D category, the Sonata Embera in the E segment and the Tucson and the Terracan in the sports utility vehicles segment.
Driving in Records
Already being the largest manufacturing facilities outside of Korea, Hyundai is the only carmaker in the country that has been facing capacity constraints, forcing it to operate three shifts from last March, thereby raising throughput from 2.5 lakh to three lakh units per annum. This is at a time when most of its counterparts are dogged with inventory pile-ups.
Though its $29-billion Korean parent Hyundai Motor Company has been plagued with strikes and other labour-related issues in its home market for long, Hyundai India has been driving full throttle on the success highway, setting one milestone after another: it became the second- largest carmaker within six months of beginning production; it rolled out the 100,000th car within 19 months of the commissioning its Chennai plant located at Irungattukottai; rolled out the fastest one-millionth car in March ’06; it became the fastest exporter by rolling out 3,00,000th car; and it’s the largest Hyundai operations outside Korea since it drove into this marketplace a little over a decade ago on May 17, 1996. Though for a while it had lost the coveted No 2 position to the homegrown Tata Motors this marketing machine fought back and regained its No 2 status soon. And now with 18.5 percent of the domestic car pie, it wants to jack it up to 20 percent by the end of this fiscal.
Not just that. This is the No 1 car exporter from the country commanding over 60 percent of the overall car shipments. In calendar 06, it shipped as many as 1,13,339 units, netting over $613 million (around Rs 2,760 crore) in revenues, up over 17 percent from the past fiscal at $535 million (around Rs 2,410 crore), informs Lheem. A feat in every sense, as the journey from shipping a meagre 20 cars to Nepal in December 1999 to reaching the one-lakh-mark in October 04 and then crossing the two-lakh-mark within a year to today’s envious position of the No 1 exporter, Hyundai has come a long way. What more, as on end December, Hyundai had a backlog of 25,000 export orders for the Santro alone. Currently, made-in-India Hyundai cars are sold in as many as 65 markets across Europe (which is the largest market), South America and South Africa.
And the company is gung-ho about more exports too. Lheem says the parent company will be relocating the entire Getz production to India by the end of this year in its bid to make the Indian facilities its export hub. The work towards this is already underway with its Rs 2,429-crore upcoming three-lakh facility in Chennai and it plans to export half of the volume form the new plant. Last year Hyundai produced 2,00,903 Getz in Korea and 15,151 in India.
The exports push will get another leg-up when its proposed R&D centre, with a planned investment of around Rs 200-crore and 1,000 researchers, will become operational.
On the product innovation side too, Hyndai has been setting new standards and milestones. Because, says its sales and marketing vice-president Arvind Saxena, “we wanted to give a truly international car to this market, not just dump a foreign design and technology that may or may not be compatible here. We were the first one to bring the four-wheel drive cars into the segment. We were the first one to bring in power steering too. The next big change was the clear headlight we introduced. So, these are the various things we keep doing to keep the customer interest alive. Also, we were the first one to bring the CRDI technology into the country.”
Since its entry in May 1996, Hyundai has invested Rs 3,372 crore in plant and machinery and is also pumping another Rs 2,429 crore into a second plant that is slated to be operational by October 07. Its vendors have already pumped in Rs 1,205 and will be supplementing the new plant with another Rs 1,564-crore investment, while Rs 1,021 crore more will be put in by new vendors, informs Lheem.
With manufacturing presence in Korea, the US, China, Europe and India, Hyundai Motor Company, founded in 1967 and since 2004 known as the Hyundai-Kia Autom otive Group which includes over two-dozen auto-related subsidiaries and affiliates, ranks 75th in the Inter brand Survey 2006, up 17 rungs from the previous year’s 84th rank to an estimated brand value of $4.1 billion. Its employs over 68,000 people worldwide and markets in 193 countries and is the fastest growing automobile brand in the world. Selling 2.66 million units in 2006, up 5.1 percent over 2005, Hyundai is the largest automaker in Korea and the world’s sixth largest. It has set a 2.735-million unit sales target for 2007.
Switching to the Top Gear
Considering the brute dominance of Maruti Suzuki in the domestic market with around 50 percent of the market, the homegrown Tata Motors’ much-touted Rs one-lakh car hitting the roads by next year, French major Logan, which is known for its value offering, Honda’s serious bid to tap this market with a small car and the unprecedented number of new launches (over a dozen) slated for the this year alone among others, isn’t it a Herculean task for this Korean marketer to climb on to the coveted No 1 position by overtaking many a barrier? The Hyundai team that has tasted a runaway success with many a record-breaking milestone, doesn’t think so. Obviously, it expects a major decline in Maruit’s market dominance over the next three years as the market gets more mature and newer models flood the market. Maybe Hyundai is drawing some conclusion from the steeply declining share of Maruti over the past one fiscal alone —while Maruti’s market share touched a full 60 percent shortly after the launch of the Swift in 2005, it slumped by over 10 percent during the past 12 months to around 50 percent and has not been able to better it since then. So, a compounded 20-25 percent decline in Maruti’s market share over the next three years isn’t an impossible proposition, especially since the American and Japanese brands have suddenly put India on their radar and aren’t leaving any stone unturned to make their presence increasingly felt.
“We are doing everything to achieve our target; we have been doing this all these years and we will be able to repeat our success story in the coming years as well,” says Lheem. So confident is the man on the Hyundai hot wheel that he goes on to add that “we will launch two new models, including variants, every year in this fast growing market. These launches would include diesel cars and a 1.2-litre engine hatchback. We will be launching a diesel version of the premium sedan Sonata Embera by end 07, while the mid-size Verna’s petrol and diesel variants are also on the cards. Also, we will be expanding our Sonata range by introducing a diesel variant. “We are chalking out an aggressive strategy to become the No 1 carmaker here by the end of this decade, which will see our number of dealerships going up massively. ”
It’s learnt that Hyundai may join the battle in the sub-compact car market after Tata Motors introduces its Rs one-lakh car in the second half of 08. It’s also rumoured that it will roll out an 800-cc model from its sister concern Kia Motors by 08-09. Kia Motors that sells 800cc cars in Southeast Asia and Korea is an associate company of Hyundai and the second biggest carmaker in Korea. This small car is likely to be priced as low as Rs 1.6-1.7 lakh, much lower than Hyundai India’s current lowest range model Santro. There is also a reported move by it to enter the commercial vehicle segment with a one-tonne pick-up truck which is the fastest growing segment and is being ruled by the Tatas’ 207 model. Once its second plant becomes operational and the parent company shifts the production of its entry-level hatchback Getz to that plant, it is likely that Hyundai may come out with a diesel version of this model too.
The Nuts & Bolts of Success
A closer look at the marketing and product strategy of Hyundai throws up a unique fact—the letter ‘R’ and in many a multiple is at the core of its mantra. In fact, the six Rs form the key clog of the success wheel of Hyundai Motor India—right product, right customer focus, right pricing, right marketing plan, right research and development and right timing. Though target-driven as any other Korean marketer like LG or Samsung, this car marketer has stretched this target to an entirely different scale —setting a target for customer satisfaction, in terms of meeting his expectations and needs, pricing, quality and technological progress. Because overriding all the above six-pronged approach is its right customer focus.
As a marketer the Hyundai management believes that it’s a truly global company that can offer tailor-made products and strategies to suit local market conditions. “As the customer profile in each market differs, one has to adopt different marketing strategies and structures. So, the style of marketing largely depends on which country you are in and not so much about your country-of-origin. Ultim- ately you’ve to service your customer by creating products/services that satisfy their needs. And this is what Hyundai has been being doing all these while,” points out Saxena.
And even the competition and analysts admit its success both as a manufacturer as well as a marketer. The Boston Consulting Group vice-president Arindam Bhattacharya opines, “Hyundai’s success is primarily due to the quality of its products and the very competitive pricing”.
On the marketing side, it’s always been closely associated with its consumers. For instance, to improve its products in terms of quality, reliability, service standards and overall communication, it religiously takes feedback from its customers at regular intervals. “Customer is at the centre of our marketing plan and our technology is tuned to meet their needs and expectations. R&D is one of the key functions used to get customer insights; also to meet their expectations we regularly do a product clinic that always starts much before the actual introduction of the product,” informs the top brass Lheem.
The marketing head echoes this when he says, “when we started off we had only one compact car, the Santro. But today we have a full line of cars from small to mid-size to premium to SUVs in seven segments. Right from the beginning we have been bringing in the best of technology. Surely, the timing of our entry too helped us a lot. On top of our success is the fact that we brought in a product that this market really wanted and could meet the customer expectations.” He goes on to add that his company’s biggest advantage is its ability to really gauge the customer sentiment and then offer a product that met those. “At no point, really we feel that which Hyundai car one buys. Because, it’s gratifying that we could build a longer relationship with the consumer. I think that is another strategy that worked well for us,” Saxena avers.
Scotching the general criticism that Koreans are only volume-driven, Saxena says like every other Korean brand, Hyundai too is target-driven, but with a difference. “Yes, we are target-driven in every sense but not just in numbers and profits. In fact, we are more target-driven in satisfying our customers that our first target is to offer them the best quality product and technology at the best value and at the best price.”
As in the US, where Hyundai today is the fastest growing car brand, in this market too when it entered, the only factor going in its favour was its value-for-money offering, as its entry offering Santro was lacking on many scores such as design, etc. When Hyundai rode into the US some two decades back, it’s best known as rattletrap ‘econoboxes’ and not as a car marketer. But as the Korean marketers are wont to this Korean upstart soon appropriated the Toyota and Honda playbook and soon moved into larger, better-made cars and expanded into more lucrative segments such as minivans and SUVs, and by 2005 rode into the luxury arena with the $30,000 Azera. Globally, it’s aggressively moving upmarket and even harbours ambitions of getting into the profitable but crowded luxury segment. Similarly, back here, the very same Santro shortly became the most successful brand from the Hyundai marquee and still continues to be so.
Taking stock of the past one decade of unprecedented success, Lheem says a combination of factors such as the general economic boom and the resultant increase in the disposable income, and cheaper interest rates which enabled auto finance much more affordable among others helped it success. “The attributes of our success can’t be one factor like marketing or launching a product. It’s a combination of all the activities like launching a new model or a variant at the right time and at very competitive prices, effective marketing tools, the extensive R&D etc,” he says, adding our success has also been due to our fundamental belief of “giving greater value to our customers within the price they’re paying. We’ve done that in all our segments and will continue to do so. We’ve given our customer a wider choice in every segment.”
Hyundai completed its tenth successful year in May 2006, setting many a record, crossing significant milestones, beating stringent competition and demanding markets during its journey. Narrating the decade-old journey, Lheem, who has been at the helm since the December 05 (he was heading the Turkish operations before moving to India), says we made our debut with the 1.1-litre Santro in 1998 and then never looked back. We emerged as the second largest carmaker within six months and within 19 month we rolled out our 100,000th car from our Chennai plant. We’re also credited with the unique distinction of rolling out the fastest one-millionth car in March 06, and since December 1999, we shipped three lakh Santros alone, and today we are the number one exporter from the country.
“India is the largest Hyundai operations outside of Korea. We’ve captured over 18 percent of market and are geared up to achieve 20 percent by this yearend. With a scorching economy and the rapidly rising purchasing power, India’s a very exciting destination for us. Its’ a tremendous opportunity for us to invest here,” Lheem is completely sanguine.
Driving an Emotional Connect
When it comes to marketing communications, it’s a big bang entry, typical of any Korean chaebol present here, and the brand has successfully weathered the rough and tumble of the desi roads. But it wasn’t an easy job to strike an emotional connect with the Indian psyche with a completely unknown brand. Capping it all was that fact that the brand name was very weak in this market dominated by just one brand Maruti, a household name. Compounding the situation was that by the time its Santro hit the road, another Korean brand, the now-failed Daewoo’s Matiz was already doing well, and the Tatas were just about to rollout Indica.
But Hyundai took the cudgels with a firm determination, and successfully at that too. For instance when it comes to communications, it’s been one of the few car brands that has effectively used brand ambassadors, be it Shah Rukh Khan, Preity Zinta or Sania Mirza. The core of its marcomm strategy is to connect with every Indian and the choicest way to do so was to rope in a pan-Indian face, Shah Rukh Khan, to endorse it. “SRK was chosen as he’s and still is not only a pan-Indian hero but represents the face of the young and emerging India also,” previous agency Saatchi & Saatchi group account director Neville Medhora told Pitch earlier.
Recalling the daunting challenges during the entry, Medhora says, “Hyundai was going to launch a car that nobody had heard of in this market, the shape of which nobody had seen and completely unlike any other car, supported by an unknown dealer network and made by a company about which this market knew nothing about.” But its success is that it has done this job extremely well. So, the first task was to peep into the psychographics of consumers.”
The association with SRK has been so effective that Hyundai’s in-house ad agency claims that it’s redefined the role of brand ambassadors. “SRK as the Hyundai brand face is a much chronicled idea. It’s something that has stood the brand in good stead, giving it the much-needed relatability and empathy from the very launch stage itself. We at Innocean feel this association as a great symbiotic relationship. His presence has helped the brand gain quick acceptance dissemination of its quality credentials,” says Innocean Worldwide executive director Vivek Srivastava.
With as many 25 compact cars and around 15 mid-size sedans to choose, and another 30 new models slated to drive in this year, the around Rs 45,000-crore domestic passenger car market rode on to record a historic 22.7 percent growth rate during April-December 06—second only to the 28.6 percent growth rate logged in FY04. Domestic car sales stood at 81,026 units in December 06, up 23 percent, against 65,853 units in December 05, while total passenger vehicle sales, including sports and MUVs stood at 9.77 lakh units, up 20.76 percent, says the latest data from Society of Indian Automobile Manufacturers. Analysts believe the industry will close FY07 clipping at around 23 percent, against last 16 percent in FY06. During the first three quarters of the current fiscal, the industry sold 7.65 lakh units, against 6.23 lakh units during the same period last fiscal-however, during calendar 06 it crossed the coveted million-mark, thanks to the eight percent cut in the excise duty on small cars from 24 percent to 16 percent, which was announced in the last Budget, which helped leading marketers like Maruti, Tata Motors and Hyundai to outpace the industry growth by aggressively launches more models. With the launch of the new Zen Estilo, Indica Xeta and the Chevrolet Aveo U-Va from the GM marquee, the industry is expected to maintain the scorching growth momentum through the remaining three months. With big-ticket investments by almost all the players , mostly from Suzuki, Honda, Hyndai, GM, Ford, Tata-Fiat, Renault-Mahindra and Logan and Nissan drawing up plans to enter, the industry expects an explosion of models in the compact and mid-size segments by the turn of this decade.
According to the US consultancy firm Keystone, a subsidiary of LaSalle Consulting Associates, India will be the world’s third largest automobile market by 2030, behind just China and the US with a projected size of the domestic vehicle market at over 20 million, for 62 million for China and 23 million for the US. This would mean that India would displace the current second largest auto market Japan to a poor fifth position, significantly improving upon its current car penetration of eight cars per 1,000 people. The top five auto markets are the US, Japan, China, Germany and Britain. By 2017, China is projected to become the world largest auto market, surpassing the US and around the same time, Indian sales will surpass that of Japan.
While the slew of new launches and attractive discounts by leading carmakers have been helping the market grow at an explosive rate, this stupendous growth has been driven mainly by the compact car segment comprising models like the Alto and Wagon-R from the Maruti marquee, the Santro, the Tata Indica and its new variant Xeta. The compact car segment constitutes close to 70 percent of the Rs 45,000-crore domestic car market. In the mid-size segment, Honda’s City and the Civic together top the volume growth chart with total sales of 29,527 units, up 14 percent over 25,894 units last year. Other models that have done commendably well are the Ford Fiesta, the Maruit Esteem and the Tata Indigo range.
The passenger car segment constitutes the largest chunk of the $34-billion domestic auto industry, which is the single largest industrial sector in the country. The auto industry has been growing at a CAGR of 14 percent during the last five years, making this the world’s second largest two-wheeler market, the fourth largest commercial vehicle market and the 11th largest car market. Observing fast emerging sales trends during the past three quarters, industry observers anticipate that the overall auto sales would touch 10 million by this March on back of an expected annual 20 percent growth. The industry saw volume touching 10.9 million units in 06 on a 16.2-percentage point growth over 05. But the passenger car segment, on back of attractive discounts by carmakers cruised ahead in the last month of the past year growing at a much faster clip at a 20 percentage point growth over 12.4 percent for utility vehicles and 16.3 percent for multi-purpose vehicles.
While buoyant demand and the ability to pass on rise in costs have facilitated growth in revenue and profit of manufacturers in 06, calendar 07 is set to continue to drive in decent growth. Growth can accelerate if the Budget 08 extends the 16 percent concessional excise duty to all segments. In any case, the passenger vehicle segment is set for an accelerated growth from 08 onwards, with cost of ownership and affordability is set to become easier.
While Hyundai has everything going for it, it has to be seen how it will take on the competition and manage to sell all its rollouts as by 2010 there will be around 2.5 million production against 1.6 million demand.
Interview: Heung Soo Lheem
‘We will be No 1 by 2010’
Assistant Editor KJ Bennychan spoke to the man on the Hyundai hot wheel Heung Soo Lheem, who has been driving Hyundai Motor India as its managing director since December 05, over email to know his company’s plans for India. Excerpts:
Do you see the current phase of scorching growth sustaining for long? What’s the macroeconomic view of Hyundai about India?
The Indian economy is growing rapidly and the purchasing power is increasing. It’s a tremendous opportunity for companies like Hyundai to invest here. We’re glad to be part of India’s economic development at this crucial juncture. Rising disposable incomes and changing lifestyles have scooters or motorbikes now buying cars and those driving small and inexpensive cars are upgrading to more expensive cars. This scenario of the car market is definitely here to stay long in the developing country like India. The investment plans, which we have for India clearly indicates our plans at the macro level. Hyundai Motor Company also wants India to be the global export hub for small and compact cars.
Within a short span you have become the No 2 car brand here. How do you look back, and to what do you attribute this stupendous success?
Hyundai Motor India completed its tenth successful year here on May 17, 2006. It has been a very challenging and exciting stint throughout and today Hyundai is one of the most preferred brands here. It has crossed significant milestones during its journey in such a stringent competition and demanding markets.
We made our debut here by launching the 1.1-litre Santro in the small car segment in 1998 and then never looked back. It emerged as the second largest automobile manufacturer in the country within a very short span of six months after it began production. It also rolled out its 100,000th car from its Chennai plant within just 19 months of commencement of operations. The company is also credited with the unique distinction of rolling out the fastest one-millionth car in March this year. The company has also emerged as the largest automobile exporter here.
We have given our customer a wider choice by offering products in each and every segment of the market. We already have seven models on the road and plan to launch two new models every year. We have launched our much-awaited premium mid-size sedan-the Verna in September 2006, with overwhelming response. We believe in giving greater value to our customers within the price they are paying. We’ve done that in all our segments and will continue to do so.
We’ve captured more than 18 percent of market share and geared up to achieve 20 percent by the end of this fiscal. India is a very exciting destination for us at Hyundai. Its economy is growing rapidly and the people’s purchasing is increasing. It is a tremendous opportunity for companies like us to invest here.
The attributes to success cannot be one factor like marketing or launching a product. It is a combination of all the activities like launching a product or variant at the right time in the market and also at a very competitive pricing; key marketing tools used by the company to stay ahead of competition; the research and development carried out before introducing any product or variant.
Where do you see Hyundai India by the end of this decade?
My vision is to make Hyundai Motor India the Number One car company in India. This year, we aim to achieve 20 percent market share and sell 3,00,000 cars. We plan to have a strong dealer and service network that reaches even the smallest townships and ensure a smile on the face of every Hyundai customers here.
What’s the Hyundai way of looking at consumers and marketing?
Hyundai has always been closely associated with its consumers. At regular intervals, feedback is taken from customers so as to improve our product in terms of quality, reliability, service standards and overall communication.
What are your learnings from here?
India is a rapidly growing auto market with purchasing power of consumers rising steadily. As in other parts of the world, quality products and competitive pricing ensures a healthy growth. For Indians, word-of-mouth publicity is the biggest influencer for buying anything, whereas their counter parts in US depend mostly on their previous experience with a product.
How independent is Hyundai India from the parent? Who takes the final call on issues related to Indian marketing?
Hyundai India is completely independent from parent as far as the issues related to Indian market are concerned. Indian team takes its own marketing decisions in terms of products, pricing, promotions which are suited to the local market conditions and demands.