Toyota and Honda have been selling cars in India for more
than a decade. But in spite of their experience, I believe that we won’t see
the Toyota Etios/Liva and the Honda Brio doing too well in about a year from
now. And I just have two reasons for that.
The Competition
When Toyota and Honda entered the market, they only had to
compete with each other. Then the Skoda Octavia came along. The terrific fuel
economy of the Octavia diesel almost finished off the Japanese. Honda responded
by bringing in the new City at a lower price point while Toyota managed to
introduce a diesel engine much later than they would have liked. In the end,
Toyota got busy with the Innova (and Corolla got the step-motherly treatment)
while Honda was content with the City being a premium compact sedan with
steadily declining sales.
In the Rs. 4-6L price segment, the biggest guys are Maruti
and Hyundai. They probably account for two out of every three cars sold in
India and they haven’t got there by being lucky. In fact, Toyota & Honda are
facing these heavyweights for the very first time, and they do not even have
the Home advantage. The Japanese would be competing against brands that are
synonymous with frugality and low-maintenance. While the premium image of the
Japanese translates to high maintenance costs and low fuel economy. Heck, almost
everyone I know recommends nothing but a Maruti or Hyundai as a first car. Also,
considering the sales and service network that Maruti and Hyundai have, Toyota
and Honda might want to resort to black magic to succeed in this price segment.
The Buyer
Toyota and Honda have only interacted with buyers in the Rs.
10L (more or less) and above range. Typically, these are not first-time car
buyers. They would have owned a car before and would be looking to trade up.
And the premium Japanese brands made a lot of sense.
On the other hand, the Rs. 4-6L segment (where the Liva and
Brio are coming) is a completely different ball game. These are mostly first-time
car buyers. Their primary priorities generally are good fuel economy and low-maintenance.
In this price segment, the premium image of the Japanese brands would imply high
maintenance costs and low fuel economy. While I don’t deny that there will be
buyers looking for a premium brand in this price segment; let’s face it, they
would be too few to matter.
I believe the Japanese would not succeed for the same reason
a Maruti or Hyundai does not do well above the Rs. 10L range – brand hierarchy.
Indians typically form a hierarchy of brands in their mind and associate each
brand with particular qualities. These perceptions are very hard and costly to modify.
In order to change their perception, the Japanese would most likely have to
sacrifice their high-end customers. Undoubtedly, a very tough choice to make.
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