CASE STUY ON:

FACTORS AFFECTING CAR BUYING BEHAVIOUR OF CUSTOMERS

AUTOMOBILE INDUSTRY IN INDIA

In India there are 100 people per vehicle, while this figure is 82 in China. It is expected that Indian automobile industry will achieve mass motorization status by 2014.

Industry Overview

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry of India has come a long way. During its early stages the auto industry was overlooked by the then Government and the policies were also not favorable. The liberalization policy and various tax reliefs by the Govt. of India in recent years has made remarkable impacts on Indian Automobile Industry. Indian auto industry, which is currently growing at the pace of around 18 % per annum, has become a hot destination for global auto players like Volvo, General Motors and Ford.

A well developed transportation system plays a key role in the development of an economy, and India is no exception to it. With the growth of transportation system the Automotive Industry of India is also growing at rapid speed, occupying an important place on the 'canvas' of Indian economy.

Today Indian automotive industry is fully capable of producing various kinds of vehicles and can be divided into 03 broad categories: Cars, two-wheelers and heavy vehicles.

Snippets The first automobile in India rolled in 1897 in Bombay.

India is being recognized as potential emerging auto market.

Foreign players are adding to their investments in Indian auto industry.

Within two-wheelers, motorcycles contribute 80% of the segment size.

Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%).

Tata Motors dominates over 60% of the Indian commercial vehicle market.

2/3rd of auto component production is consumed directly by OEMs.

India is the largest three-wheeler market in the world.

India is the largest two-wheeler manufacturer in the world.

India is the second largest tractor manufacturer in the world.

India is the fifth largest commercial vehicle manufacturer in the world.

The number one global motorcycle manufacturer is in India.

India is the fourth largest car market in Asia - recently crossed the 1 million mark.

Segment Know how

Among the two-wheeler segment, motorcycles have major share in the market. Hero Honda contributes 50% motorcycles to the market. In it Honda holds 46% share in scooter and TVS makes 82% of the mopeds in the country.

40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the market share. Among the passenger transport, Bajaj is the leader by making 68% of the three-wheelers. Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in passenger cars and is a complete monopoly in multi purpose vehicles. In utility vehicles Mahindra holds 42% share.

In commercial vehicle, Tata Motors dominates the market with more than 60% share. Tata Motors is also the world's fifth largest medium & heavy commercial vehicle manufacturer.

Cars by Price Range

Under Rs. 3 Lakhs Maruti 800 , Alto, Omni

Reva

Rs. 3-5 Lakhs

Ambassador

Fiat Palio

Hyundai Santro , Getz

Chevrolet Opel Corsa

Maruti Zen , Wagon R, Versa, Esteem, Gypsy

Ford Icon & Fiesta

Tata Indica , Indigo XL, Indigo Marina

Rs. 5-10 Lakhs Chevrolet Swing, Optra Magnum, Tavera

Hyundai Accent, Elantra

Mahindra Scorpio

Maruti Baleno

Toyota Innova

Tata Safari

Mitsubishi Lancer , Mitsubishi Cedia

Honda City ZX

Mahindra Bolero

Hyundai Sonata Embera

Rs. 10-15 Lakhs

Toyota Corolla

Ford Mondeo & Endeavour

Chevrolet Forester

Skoda Octavia & Combi

Honda Civic

Rs. 15-30 Lakh

Honda CR-V

Maruti Suzuki Grand Vitara

Terracan & Tucson

Mitsubishi Pajero

Audi A4

Opel Vectra

Honda Accord

Mercedes C Class

Toyota Camry

Rs. 30-90 Lakhs

Audi A6, A8 & Audi TT

BMW X5, 5 Series & 7 Series

Mercedes E Class, S Class, SLK, SL & CLS-Class

Porsche Boxster, Cayenne, 911 Carrera & Cayman S

Toyota Prado

Above Rs. 1 Crore

Bentley Arnage, Bentley Continental GT & Flying Spur

Rolls Royce Phantom

Maybach

Major Manufacturers in Automobile Industry Maruti Udyog Ltd. General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

Telco

TVS Motors

DC Designs

Swaraj Mazda Ltd

Anticipating Consumer ChangesWhat do these findings tell us? They make it clear that consumer behaviour is evolving and that automotive companies need to anticipate this evolution in order to be part of, or even influence, the changes. Is your company ready? What changes will you need to make? Companies will need to take a look at their multi-channel approach as they consider the potential market for online sales. Effective web strategies will be vitally important, as the online landscape evolves rapidly with the emergence of powerful consumer-to-consumer tools like blogs, discussion forums, social networking sites and virtual worlds. Automotive companies will need to stay focused on environmental developments and evolving consumer attitudes about fuel-efficient and alternative-fuel vehicles. As with the web, green issues are dynamic and it’s still too early to determine their ultimate impact on the automotive industry. Manufacturer/dealer collaboration in the form of effective retail integration and integrated lead management will become more important than ever to satisfy increasingly sophisticated and demanding consumers and to retain loyalty. And companies will need to establish and maintain a true two-way dialogue with individual customers through personalised communication. While this topline review provides a summary of key findings from this

year’s Cars Online study, the sections that follow offer more in-depth data and analysis of consumer behaviour, environmental issues, web usage, lead management and customer loyalty.

Consumer Behaviour: Turning to the Web and New C2C ToolsConsumers today have a multitude of sources from which to gather information during the vehicle buying process, but the Internet tops the list. The web has become a standard resource in the shopping process for eight out of 10 consumers when researching car purchases. However, the way they use it is changing. As the web matures, vehicle buyers are visiting fewer sites and focussing more on manufacturer and C2C websites and less on third-party information sites and independent e-tailer sties.

Manufacturer Sites a Key Information SourceJust two years ago, information websites were identified as the number one information source by web users responding to the Cars Online survey (tied with family and friends and manufacturer specific dealer), named by 55% of consumers. This year, they dropped to the number four source, named by 41% of web users. In comparison, manufacturer sites are now the top source for consumers who use the web when researching vehicles, named by 70% of respondents. Two years ago manufacturer sites held the number three position, named by 43% of web users. The use of dealer websites has remained steady, with about half of web users turning to these sites.

At the same time, the use of new online consumer-to-consumer tools such as blogs, RSS (Really

Simple Syndication) feeds, user-generated content, social networking sites and web forums is

growing. In this year’s study, 29% of web users indicated that they use these kinds of tools when

researching during the vehicle shopping process, up from 21% a year ago. (For a more detailed

analysis of the use of these new online tools see separate section on “Web Usage.”) Interestingly, it is

not just the young generation who use the web to research vehicles. Almost half of consumers 50 and

older visit manufacturer sites, nearly the same number as those in the 18 to 34 age group. The

numbers do fall off, however, when it comes to blogs and web forums. About 30% of the youngest

consumers rely on these new tools, compared with just 12% of those 50 and older. As web usage

rises, consumer reliance on other more traditional information sources is on the decline. Take print

advertising, for example, which has shown a steady downward trend particularly among consumers

who rely on the web during the vehicle shopping process. This year, just 20% of web users said they

use print ads when researching vehicles, compared with 32% in 2005. The message for automotive

companies is clear: Consumers trust the information they receive from manufacturer and C2C sites.

Vehicle manufacturers and dealers need to be aware of how fast online changes are occurring and

continually adjust their marketing mix and resources accordingly to anticipate tomorrow’s mix.

Marketing funds directed toward more traditional media such as print advertising should be regularly

re-examined for ROI.

Key Factors in Vehicle Choice

When it comes to making their final decision about which vehicle to buy, consumers focus on factors

such as reliability, safety, price and fuel economy. At the bottom of the list are cash-back incentives,

named by fewer than half of consumers. The importance of incentives as a deciding factor has

declined for the past several years, indicating that consumers today seem less interested in gimmicks

when it comes to their car purchases. Where consumers are in the buying cycle can make a difference

in how they rank the factors that influence their vehicle choice. For example, additional warranty

coverage is important to consumers who are furthest away from the point of purchase; it was named

by 69% of respondents who were 13 to 18 months from purchase. However, the number declines as

consumers get closer to actually buying the car: 55% of respondents who were within three months of

purchase said extra warranty coverage was important. This reflects the fact that consumers will

narrow down the factors that really matter to them as they get closer to the point of purchase.

Demographic factors such as age and gender accounted for some variances. For example, older

consumers tend to put more emphasis on reliability and safety than do younger respondents. Those in

the 50-plus age group were also more concerned with environmental issues and fuel economy. The

youngest respondents were most likely to rate the ability to research information on the Internet as an

important factor in their vehicle decision. Women tend to rate most of the factors as more important

than do men. The difference was most pronounced for cash-back incentives, low financing, safety,

environmental issues, fuel economy and additional warranty coverage.

Conclusions and RecommendationsSince Indian Automobile market is continuously in the prowl of surging as a major car manufacturer, people are purchasing car as there is increase of income of common people as well as change in tastes and preferences of consumers. It is important for the car manufacturers and car dealers to be able to understand the different factors affecting the extent in car purchasing behaviour. The factor analysis results indicate that factor which consists of Information provided by salesperson; safety; easy availability of spare parts; technology is affecting the car purchasing behaviour. People are more conscious about the on spot information provided about various cars who serves according to the needs and wants of the customer. The type of technology used and the wider reach of the service stations also

affect the most on car purchasing decision. While government obligations and various policies like import duties, custom exemptions is seen as second most affecting driver of purchase of cars. Factor 3 includes family needs; brand image; income level; special family programs/events like Anniversary, Birthday; insurance facility; credit card acceptance; car accessories affects customers car purchase decision causing a variance of 3.080.This shows that importance of family decisions, special occasions in family and the various services provided by car dealers. Factor 4, Table 7 includes instalment payment facility; location of the car dealer shop; looks; availability of service station showing customers accessibility to the service provided. Factor 5 shows the impact of various promotional activities and extra care taken by car dealers. Factors 6 shows the impact of suggestion provided by family members and peers as well as price and after sales service provided. Factor 7 includes the infrastructural benefits of the shop and the variety of cars it stores .The last but not the least ones shows the impact of factors of technical specifications of the car and the festive season offers.

Overall, various internal and external factors like extra care facilities, location of the shops, various information provided by car dealers, advertisement and print media promotions, features of the car in all are contributing in making car purchasing behaviour of customers.