case study cross badging

VW Vento Skoda Rapid

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?

By N. MadhavaN

Cover story Cross-badging

Double TRouble

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CAse study

n 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 manufac-turer Volkswagen’s sedan Vento. It sold 3,474 units in India in October 2011. A month later, car-maker 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 differ-ences, made in the same factories, but sold un-der different names. So too are Sunny and Scala, or Vento and R a p i d .

Welcome to the strategy of cross-badging, 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 engineer-ing, design and product develop-ment costs, to achieve economies of scale, to reduce the lead time in bringing a new product to the mar-ket, 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 `300 crore to develop a car for India. But cross-badging re-quires merely tooling changes – an investment of less than `20 crore. It would have cost Renault India a lot more time and money to de-velop 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 cross-badging 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

f r a n c h i s e e i n India.

But does it? In India,

I

Minimum cost of developing a new car

for India

`300 Crore

both attempts so far have been fail-ures. 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 at-tribute 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 coun-tries 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

Why has the cross-branding strategy not worked in the automobile market in India? The similarity of the fea-

tures in cross-branded products, despite the products belong-ing 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 buy-ing is a high-involvement process for the consumer, she is willing to spend time, effort and energy to arrive at the deci-sion. 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 behav-iour 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 phenome-non. At this point in history of automobile industry in India, cross-branding is driven essentially by production and manufacturing considerations than by consumer logic.

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


Micra sales when Pulse was launched

(January 2012):

1,855 units

Combined Micra and Pulse sales today ((Feb 2013)

1,028 units

no fooling the indiAn Consumer


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. “Cross-badging 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 proposi-tion to the consumer.”

Others claim the Indian market is not yet mature enough for this particular strategy. “Indian cus-tomers 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 en-trenched and aggressive players. There are no shortcuts like cross-badging to brand building, large investments are essential. “It is


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 multi-brand showroom, looks at competing brands and understands the ethos of the different brands. For cross-badging 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)

Who knoWs the mother brAnd?

“For cross-badging to succeed, manufacturers first need to establish their brands well in the market”rAKesh bAtrA, National Leader, India Automotive Practice, Ernst & Young

Sunny sales whenScala was launched

(August 2012):

2,757 units

Combined Sunny and Scala sales today (Feb 2013)

1,811 units


financially prudent and more effective to spend heavily on developing one brand,” adds Subbu. He feels Renault and Nissan would have fared better if t h e y h a d c o m m o n d e a l e r s h i p s and service centres and had sold their respective brands under the one roof rather than cross-badging each other’s prod-ucts. “It is a strategy that is best avoided in India,” he adds.

Nissan itself is alive to cross-badging’s limitations. “Cross-badging 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 al-ways 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 rea-sons for this. This sports car was developed jointly by Subaru and Toyota Motor Co, thereby produc-ing, 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-badg-ing it . In contrast, General Motors in the uS

has tried cross-badging all too frequently – and is pay-

ing for doing so. “Excessive cross-badging is one of the factors that contributed to General Motors’ bankruptcy,” says Kakade. ~

Why do you think the cross-badg-ing strategy fails in India? Write to [email protected] or post your comments at www.businesstoday.in/casestudy-cross-badging. Your views will be published in our online edition. The best response will win a copy of the Harvard Business School Press pocket mentor. Previous case studies are at www.businesstoday.in/casestudy.

bt receives scores of responses to its case studies. below is the best one on eID Parry (march 3, 2013)Best of the lot

Sanjay Gupta [[email protected]]:

Your case study on EID Parry shows how the company has created shared opportuni-ties 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 Parry’s business model. Government regulations relating to ‘command area’ have had a major impact on industry dynam-ics. 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 Parry’s model has created a perfect ecosystem, built on interdepend-ence 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

Vento sales before Rapid launch (October 2011):

3,474 units

Combined Vento and Rapid sales today (Feb 2013): 3,280

case study cross badging

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