cross badging in indian market:an analysis

11
CROSS-BADGING IN INDIAN MARKET: AN ANALYSIS R.M.MONISH 09MBI105 VIT-BS VIT University Abstract This paper explains about the Cross badging and how is its role played in Indian market, where an analysis is made. Companies go for cross badging in order to ensure cost savings and thereby achieving the economies of scale. Cross badging can take place in any type of industries. But in this paper the focus is limited to the automobile industry, since this is the only platform where the concept of cross badging is popular. This paper also exhibits the objective behind why the companies go for cross badging and what is the perception of the manufacturer or the companies behind this concept and as well as how the customers view or perceive cross badging. It also discusses on the types on how companies go for cross badging. Some of the examples are cited in this paper to give a clear idea on how companies went on to cross badging and their effect in the Indian market. And it also showcases the risks or the issues associated with cross badging. Key words

Upload: monish-rm

Post on 30-Nov-2015

132 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Cross Badging in indian market:an analysis

CROSS-BADGING IN INDIAN MARKET: AN ANALYSIS

R.M.MONISH

09MBI105

VIT-BS

VIT University

Abstract

This paper explains about the Cross badging and how is its role played in Indian market, where

an analysis is made. Companies go for cross badging in order to ensure cost savings and thereby

achieving the economies of scale. Cross badging can take place in any type of industries. But in

this paper the focus is limited to the automobile industry, since this is the only platform where

the concept of cross badging is popular. This paper also exhibits the objective behind why the

companies go for cross badging and what is the perception of the manufacturer or the companies

behind this concept and as well as how the customers view or perceive cross badging. It also

discusses on the types on how companies go for cross badging. Some of the examples are cited

in this paper to give a clear idea on how companies went on to cross badging and their effect in

the Indian market. And it also showcases the risks or the issues associated with cross badging.

Key words

Automobile, Companies, Cost savings, Cross badging, Customers, Economies of scale, Indian

market.

Page 2: Cross Badging in indian market:an analysis

Introduction

Cross badging is the concept where one company manufactures the product which is similar to

other company by making minimal or cosmetic changes in the product. This concept is mainly

popular in automobile sector. Wherein a car manufactured by company X will also be

manufactured and marketed by company Y by making some cosmetic changes to the car which

involves the change in logo, spoilers, headlights, signal lights, etc. Here the partner companies

tend to share the same platform by making some minimal cosmetic changes in engineering

process as mentioned previously. This is being followed globally by the automakers and this

resulted in a great success, but whereas in case of Indian market this concept did not achieve its

objective. There are various reasons behind this which will be discussed further in this paper.

Types of cross badging

Same car with different brand:

In this type of badging the individual manufacturer usually sells the same manufactured car

using different brand names catering to different regions and markets. This is done mainly to

increase or expand the overall rang of the brands rather than going for the entirely new model of

the product.

Companies trade off the products that each brand lacks in its line up:

This is the other way of cross badging, where if any two companies lacks in its line up then these

two separate companies enters into trade off of products in order to fill the gap. For example if

company X is having SUV’s and company Y is having sedans then company X will trade off the

SUV with Sedan from Y therefore finally these two companies X and Y will fill their lines

where they are lacking. An example of this would be the first-generation Honda Odyssey being

rebadged as an Isuzu Oasis because Isuzu needed a minivan, while the Isuzu Rodeo was

rebadged as the Honda Passport because Honda had the need for an SUV.

Page 3: Cross Badging in indian market:an analysis

Through joint ventures:

The cross badging can also be performed by the companies by entering into the joint ventures.

These companies pool their resources and use the same platform to manufacture the car and then

they market these products under their own brand names.

Issues involved in cross badging

Implementing the cross badging plays a very crucial role. If the implementation fails then it

incurs huge cost for the companies. So this aspect must be addressed carefully by the companies

while taking decisions on cross badging.

Apart from this, there might be a chance of incurring high selling costs by the companies since

they have multiple car brands and each of these must be marketed separately and thereby

establishing the distribution networks as well for each of these cars.

If the same company owns two or more brand under it, there are chances of cannibalisation to

take place, where the company’s own product might affect the sale of the other product of the

same company if it does not provide a unique and distinct identity or the image for each of these

brands.

In short run this cross badging might be beneficial, but whereas in the long run it might harm the

companies due to the dilution in differentiation of the product in the market.

Why do companies go for cross badging?

The core reason why companies go for cross badging is to reduce the overall costs involved in

new design/model making process, engineering process and therefore increasing the volume of

sales by negligible incremental investments over a period of time.

It also helps the companies to reduce its activities in sourcing, since it uses the platform of other

company. The role of supply chain can be minimised to a greater extent and also the cost related

in each stage of SCM activity can be brought down.

The companies also enter inorder to fill up their lines in which they are lacking in their portfolio.

This gap can be bridged through cross badging by entering into strategic alliances.

Page 4: Cross Badging in indian market:an analysis

When companies align, they can save resources by sharing components and platforms. To use

another partner’s car under a different brand name, the companies pay a royalty or a model fee

according to the decided agreement.

Customers’ perception or views on cross badging

Taking into account Indian customers the following are their perception on cross badging:

The customers are very price sensitive in nature. So, if they can get the same type of car

with minimal changes in its design then they tend to prefer the one which is having a

lower price tag.

As brand loyalty in this segment is very low, there is a tendency among the customers to

switch from one brand to another.

Another important point is that the customers are confused in deciding which brand and

car to select since their offering are similar in nature.

Consumers are smarter these days; they do a lot of research online before buying a

product. Dealers of competitors too are very enthusiastic on quickly informing the

customers about the sameness of the cross-badged cars in the market.

Examples of cross badging in India

Cross badged companies with their product

VW-Vento Skoda-Rapid

Nissan-Micra Renault-Pulse

Nissan-Sunny Renault-Scala

VOLKSWAGEN VENTO & SKODA RAPID:

In this cross badging cannibalisation took place. VW sold 3,474 units of Vento in October 2011.

In December 2012, it sold 1,975 units where there is a drop of almost 43 percent. In the same

period, Skoda Rapid’s sale went from zero in October 2011 to 1,890 units in December 2012.

Page 5: Cross Badging in indian market:an analysis

NISSAN MICRA & RENAULT PULSE:

Before the launch of Renault pulse, the Nissan Micra was averaging the sales of 1,300 units a

month. After the launch, both combined have not averaged more than 1,500 units a month. On

its own, this number looks just about okay. But compared with the sale of the Ford Figo (it has

more than double the sales) and it becomes clear that cross badging has not really helped Micra

or Pulse gain the market share.

NISSAN SUNNY AND RENAULT SCALA:

During the year January-august 2012, Sunny has sold an average of 2,500 units a month. After

the launch of Scala in August, while Sunny’s sales have suffered, the combined sales (Sunny and

Scala) are still averaging around 2,400 units a month.

Cross badging scenario in Indian Market

The concept of Cross badging is being used by various automobile manufacturing companies

over the years and they also have a proof that this particular concept called cross badging

workout for these companies. And so with the growing demand and market toward automobile

sector in India many players found this country as an opportunity for them to enter this market

and capture the market as much as possible along with the inclusion of cross badging concept

into the Indian automobile market.

However the Indian Market has not responded well to this cross badging.

In India the cars which are being sold or marketed as the cross badged ones have the similarity

both in their looks as well as the features.

And more over the cross badging tend to work more beneficially in the markets where there is

high levels of brand loyalty. Where as in a country like India the customers searches for the

value and therefore there are chances that he might switch over to another brand very easily. The

players like Volkswagen and Renault & Nissan are being new to the market they have to face

heavy competition in the Indian market.

Nissan Motor India's spokesperson asserts the company is using common platforms and

components to develop two different cars, each with unique design and styling cues that appeal

to different demographics."We only move forward with platform and component-sharing

Page 6: Cross Badging in indian market:an analysis

projects when it promotes brand integrity and customer satisfaction," said the Nissan India

spokesperson.

To develop a new car in India, it would cost around Rs. 300 Crores, but whereas if it goes for

cross badging it would cost only around Rs. 20 Crores since it requires only tooling changes in

the development process.

In order to increase the value proposition and market expansion the manufacturers go for cross

badging. But in India this concept did not work out well. Cross badging for the manufacturers in

India did not expand the market but it got contracted.

Conclusion

Finally I would like to conclude that Cross badging should not just be internal rather the cross

badging decisions should consider and keep in center the differences in the market and the

consumers. We can say that cross badging is successful only when it meets its objective of

having a win-win proposition of both instead of resulting in cannibalisation. This is what

happened in India where cannibalisation has resulted in many of the cases. And in countries

where brand loyalty is high this concept might perform better. In case of Indian consumers, the

brand loyalty in the automotive sector is comparatively low. Therefore this concept of cross

badging works well only when the brands of the manufacturers are well established and that

gains the strong loyalty from the consumers. The other reasons for the failure may also include

the lack of differentiation in the products, which will end up in confusion in the minds of the

customers. And this concept is new to India; it requires some time for this to go on in a positive

slope.

Page 7: Cross Badging in indian market:an analysis

References:

Ashish K Mishra.2013. Is Cross badging helping Auto companies in India.

http://forbesindia.com/article/briefing/is-crossbadging-helping-auto-companies-in-india/

34709/1. Last accessed on 23:30. 2 September 2013.

Cartrade editorial team.2013. Concept of cross badge engineering shining through Indian

auto market. http://www.cartrade.com/car-bike-news/concept-of-cross-badge-

engineering-shining-through-indian-auto-market-119918.html. Last accessed on 9:00. 2

September 2013.

Ketan takkar. 2012. “Cross badging same car, different brand has few takers of India”.

http://articles.economictimes.indiatimes.com/2012-12-05/news/35620312_1_sedan-

segment-nissan-sunny-nissan-s-micra. Last accessed on 22:15. 2 September 2013.

Mohnish Bose. 2013. Cross badging vehicles in India- Same wine. Different bottle.

http://www.carrates.in/2013/09/03/cross-badging-vehicles-in-india-same-wine-different-

bottle/ . Last accessed on 10:00. 6 September 2013.

N.Madhavan. 2013. 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 execution.

http://businesstoday.intoday.in/story/car-cross-badging-not-worked-in-india/

1/193904.html. Last accessed on 8:30. 5 September 2013.

Roudra Bhattacharya.2012. Rapid and Vento spell success for Volkswagen’s re-badging

strategy.http://www.thehindubusinessline.com/companies/rapid-and-vento-spell-success-

for-volkswagens-rebadging-strategy/article3304270.ece. Last accessed on 13:30. 15

September 2013.