Reliable Motors Ltd Marketing and Management

Executive Summary

Reliable Motors Ltd is one of the leading manufacturers of automobiles in the United Arab Emirates. Established in the year 1964 it is on the threshold of becoming a leading automobile player in the world through sustained growth in the future. To sustain and grow in the competitive automotive industry the company has developed a new electric car with the brand name RelElec to meet the changing needs of the consumers. The company plans to expand its operations in the new geographic international markets to seek new opportunities for growth. It has identified the new emerging economy India as the most promising market for RelElec.  It has segmented and targeted two potential segments of medium income group and taxi segments to make a foray in the Indian market. It has formulated suitable positioning and marketing mix strategies to succeed in its globalization efforts.   

Corporate History

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Reliable Motors Ltd is one of the leading manufacturers of automobiles in the United Arab Emirates. It was founded in the year 1964 and began its operations as a major automobile dealer in the United Arab Emirates for major European auto makers. It started its automobile manufacturing activities in the year 1973 when it started assembly of cars of a leading European automaker. Today the company is a major player in the auto industry with 12 factories and 23,000 employees in different countries in the Middle East.  The company offers a range of automobiles to cater to different market segments. Though a comparatively young automaker, Reliable Motors Ltd has been able to compete in the market with auto giants like Ford, GM, Nissan, Audi, Toyota, Chrysler, BMW, Mitsubishi, Suzuki, Honda etc.

The core competency of Reliable Motors Ltd lies in its ability to generate continuous technological innovations to manufacture and market very high quality automobiles to suit the changing needs of the customers. Its competency also lies in the speed in which it is able to develop, commercialize and market new models of automobiles in a very short period. The company at present has 6 regional, 22 branch offices, and a 200 strong dealer network which enables it to serve its target customers most efficiently and effectively in the Middle East. From its humble beginning as a major automobile dealer in 1964, Reliable Motors Ltd is on a threshold of becoming a leading automobile player in the world through sustained growth in the future.

New Product Development

The range of automobiles manufactured by Reliable Motors Ltd has served the United Arab Emirates automotive market very efficiently so far. The UAE auto market is one of the fastest growing markets in the world. The car sales in the UAE have risen by 37% year-on-year as compared to the growth rate of just 0.8% globally. This phenomenal growth has been fuelled by growth in the population, expansion of road infrastructure and rising income levels of the population. However with the entry of all the major automobile companies in the world to take the opportunity of this growing market, the UAE automotive market is witnessing hyper competition. This is accompanied by the accelerating cost of living resulting in the market becoming increasingly price sensitive. There is also an increasing awareness of environmental impact by auto emissions amongst the citizens of the United Arab Emirates. The citizens are looking at the ability of the auto makers to manufacture high quality and very fuel-efficient vehicles that emit low greenhouse gases and have lower impact on the environment. To sustain and grow in such an automotive market Reliable Motors felt the need to develop and market a high quality automobile that has minimum impact on the environment and at the same time can be reasonably priced to meet the demand of the increasingly price sensitive market. And the company needed to achieve it at a very fast pace to gain competitive advantage over its rivals.

RelElec – The Electric Car

            The management of Reliable Motors Ltd constituted a New Product Development Team comprising of representatives of the top management, Research and Development, Design, Engineering, Manufacturing, Vendor Development, Costing and Marketing and entrusted it with the responsibility of developing in a year’s time a high quality car that has minimum impact on the environment and one that could be reasonably priced. The team was headed by a senior vice president. The team proceeded through the new product development process in a very systematic way. After brainstorming with members of the team and also interacting with other key stakeholders like customers and dealers a number of ideas about a low cost and fuel efficient automobile were generated. The team met to screen the generated ideas and discussed the advantages and limitations of each idea. Finally the idea of developing an electric car was chosen. The concept of the electric car was tested by interacting with a focus group. The members of the focus group were very enthusiastic about the electric car. The idea gained further support when the business analysis conducted was very favorable towards the concept.

The competent engineers and scientists of the company then began the task of converting the concept into a prototype. As an electric motor was a crucial part of the car exhaustive interactions with the leading electric motor manufacturers was also done. The results of these sustained efforts were three prototypes that came close to the set objectives. The prototypes were then tested for their safety and other performance features. The car created a lot of excitement in the automotive market the world over. It was test marketed in different markets in the UAE. After a good response to the test market the company set up a dedicated assembly line in the existing location and is now manufacturing and distributing it under the brand name “”RelElec”. The critical parts of the vehicle like electric motor, body shell, battery and charger would be imported initially from the United States and China and later all the parts would be procured indigenously in the United Arab Emirates.

            RelElec is an electric car which is a type of alternative fuel car that utilizes electric motors and motor controllers instead of an internal combustion engine (ICE). The electric power is usually derived from battery packs in the vehicle. In general terms an electric car is a rechargeable battery electric vehicle. The car RelElec is a four-seater steel-bodied hatchback with facilities, including AC, power window and centralized locking, like any other small, premium hatchback. The fully-charged car would run for 110 km with AC switched on and another 20 kms without AC. It could give a maximum speed of 55 kmph.

Need for Entering Global Markets

            Reliable Motors Ltd is poised for further growth and is looking at the international business options to fuel growth for RelElec by extending its operations into potential new international geographic markets. The big and emerging markets in the developing world like China, India, Indonesia, South Korea, Mexico, Argentina, Brazil, South Africa, Poland and Turkey provide tremendous opportunities for the company to globalize. The growing prosperity in such markets has created an increasing appetite for automobiles. For example the development growth rate for Asia was a very healthy 7.8 percent a year between 1985 and 1990. In China the percent of people living below the poverty line dropped from 33 percent to 10 percent between 1970 and 1990. Such growth has fuelled the rise in consumption of the consumers that cannot be catered to only by the local auto manufacturers.

The markets of most developing countries comprise of four distinct segments: a global customer segment that wants products of global quality with global features and is willing to pay global prices for them, a ‘glocal’ segment that demands products of global quality with local features and less than global prices, a local segment with local products at local prices and a bottom of the pyramid segment that can afford only the most inexpensive products. Another strong reason for the company to go international is that a recent comprehensive study by the Mckinsey Global Institute reveals that by streamlining operations, processes and supply chains globally, rather than just nationally or regionally, companies can dramatically lower their costs and drop their prices to increase demand for their products, attract new customers and even new markets. Thus Reliable Motors Ltd wishes to extend its operations into new geographic markets to fuel both domestic demand in the UAE and international demand in the newly identified markets.

Destination India

Reliable Motors Ltd analyzed a number of alternative countries to market its newly developed electric car the RelElec in the international markets. A small number of countries in central Europe, Latin America and Asia experienced rapid growth in the 1990s and were identified as having major marketing opportunities. These countries known as the big emerging markets (BEMs) include China, India, Indonesia, South Korea, Brazil, Mexico, Argentina, South Africa, Poland and Turkey. India and China are poised to rule the business world in the 21st century as per economic experts and various studies conducted across the globe.

Reliable Motors Ltd decided to extend its operations into the Indian market as several factors make India a very attractive destination for the company’s RelElec. The first macro environmental factor that favors India is its economy. Several factors make India a major market force and business center in the world economy. With a steady growth since 1979, India is one of the strongest growing economies in the developing world. It has achieved a growth rate of above 8% since the year 2003-2004, its foreign exchange reserves have been steadily rising, there has been a booming capital market and rapidly expanding FDI inflows into the country. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy and by 2035, it is likely to be a larger growth driver than the six largest countries in the EU. Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a proportion of GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate as a proportion of GDP has increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.

The next significant external environment that favors India is its overall political stability. It is the largest multi-party democracy in the world. It is a multi-ethnic, multi-religious, federal republic of 28 states and 7 union territories.  The country has a bicameral parliament, an independent judiciary and a legal system based on English common law. The political landscape in India is of a fractured nature and coalition governments at the Center are likely to remain the norm for the foreseeable future resulting in politics of compromise. A strong legal system and good government regulations, anywhere in the world, will always affect business positively. The rule of law has always been respected in India and its courts have a reputation for providing just and equitable decisions though the judicial process is excruciatingly slow. However the Arbitration Act of 1996 has simplified enforcement of arbitral awards, and increased the use of arbitration in commercial disputes. The introduction of alternative dispute resolution schemes and specialist tribunals outside the court system has been successful in expediting disputes.

The effect of technology on business can never be ignored. The Indian government has been heavily investing in industry and infrastructure since independence. This has led to the growth of industrial sector, which depended heavily on imported technologies. The scenario is changing now with more investments being made in R&D system and academic institutions of very high research caliber both by the private sector and the government. This has provided opportunities for R&D and other research institutions and the industries to work together and progress. There has been great progress made in the information technology and other infrastructure necessary for the efficient performance of the industrial and services sector in the country. The country is also blessed with abundant and highly skilled manpower with great talents in engineering and other critical areas and this manpower is very cost effective as compared to most of the countries in the world. If we take the example of a critical sector like automobiles, the auto ancillary industry which is so important for the sector is very well established and globally competitive. India also has world class automobile testing and R&D centers.

Nature of Market and Demand in India for RelElec

            The Indian automobile market is a very dynamic market. The automobile sector in the country consists of the passenger cars and utility vehicles, commercial vehicle, two wheelers and tractors segment. The total market size of the auto sector in India is approximately $ 10.8 billion and has been growing at around 8 percent per annum for the last few years. The Auto Industry has witnessed high compounded annual growth rate of over 15% in vehicle production in the last 4 years. A total of 8.6 million vehicles were produced in India in the year 2004-05, of which 1.2 million were passenger cars. With an overall growth of over 12% p.a. passenger cars and two-wheelers are expected to be the fastest growing segments. The arrival of new and existing models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers, pickup in industrial activity etc. have stirred the demand for vehicles and a strong growth of the Indian automobile market. The country has excellent car dealer networks and authorized service stations spread across the country. All the leading automobile manufactures also have their service stations and dealer workshops in all the metros and major cities of the country. Dealers offer varying kind of discounts and finances, in association with finance companies, to the customers at very competitive interest rates.

However the competition in the automobile industry in India is fairly concentrated, as in most of the segments two to three players have cornered a major chunk of the total sales. For instance, in passenger cars segment, Maruti Udyog Limited, Tata Motors and Hyundai Motors control around 85 percent of the total annual sales and the balance 15 percent being shared by companies like GM, Ford, DaimlerChrysler, Honda, Toyota, Hyundai, Fiat and Volkswagen. Similarly, in the two wheelers segment, the sales volumes of Hero Honda, Bajaj Auto and TVS Motors constitute around 80 percent of the total sales and in the commercial vehicles segment, the market leader Telco controls around 56 percent of the total annual sales.

The probability of the success of the newly developed RelElec by Reliable Motors is very high in the international market of India because of a number of reasons. As already discussed there is a growing demand for automobiles in the Indian market and the demand will be much more for an electric car because of the spiraling prices of petrol and diesel in India. The consumers are very much aware that though the initial cost of purchasing an electric car may be high but savings on fuel will help it pay back for itself in just a couple of years, if not faster. The cost of driving an electric car is estimated to be around one cent per kilometer and hence ten times cheaper as compared to a petrol car.  Another advantage of electric vehicles is that they do not have the vibration, smell, and noise associated with gasoline powered cars. Driving electric vehicles is much easier as it does not require gear changes as in the case of gasoline powered cars.

Another critical factor that favors an electric car is that the consumers in India and the governments that represent them are becoming increasingly aware of the adverse impact of fossil fuels on the environment.  They are much aware of the contribution of auto emissions to global warming. The central government of India, through the ministry of new and renewable energy, is working on a plan to incentivize the whole electric vehicle chain that includes the consumers, manufacturers, battery-makers, charging stations and the battery swapping points. It is expected that all the state governments will also follow suit. The government of the state of Delhi has already taken the lead and has announced a 15 per cent subsidy on the base price of electric vehicles and a 12.5 per cent exemption of VAT in addition to refund of road tax and registration charges. This factor will act as a great driver for the growth of market for RelElec in India. There is a growing feeling that electric cars are particularly suited for Indian cities because of shorter distances and lower average speeds. A top speed of 40-60km/h and a range of 50-80km would meet over 90% of the city mobility requirements in India. All these factors will ensure the success of RelElec in the Indian markets.

Segmenting and Targeting the Indian Markets

            Reliable Motors Ltd needs to be customer centric to succeed in the 21st century’s highly competitive environment and target marketing is more effective as it helps the companies to be more customer-centric. In target marketing companies identify different segments, evaluate and select one or more of such segments and develop products/services and marketing programs to satisfy the target customers in the selected segments. Market segmentation is the process of dividing large heterogeneous markets into smaller and fairly homogeneous groups in anticipation of uniform response from the customers to their marketing stimuli. A company may use one or a combination of a number of variables to segment the markets. Reliable Motors can segment its markets on the basis of different variables. It can use income to segment the market for RelElec into a middle income group segment for entry level models and a high income group segment for the premium models. The second potential segment for the company’s product can be the eco-friendly taxi segment. This is a potential segment because of the large number of taxis that ply on the congested roads of major metros in India and the increasingly stringent norms being issued by the Indian judiciary to reduce the auto emissions by this public mode of transportation.

Once the potential segments are identified by a company for its product/service offerings then the next step is to evaluate each segment for its attractiveness and select one or more segments to enter, this process is called as targeting. . Initially Reliable Motors will select the middle income group and the taxi segment as its target segments as these provide a great opportunity for growth are very sizable and the company has the potential and the resources to satisfy the target customers in these segments.

Positioning of RelElec in India

            Once the target segments the company wishes to serve have been selected then it should decide as to what position it wants to occupy in those segments. “A products positioning is the way the product is defined by consumers on important attributes – the place the product occupies in the consumer’s mind relative to competing products”. RelElec will position itself in the middle income group segment as a product from a company committed to the protection of the environment by offering an eco-friendly car that provides an effective but low cost transportation with all the pleasures of driving at very affordable prices. Similarly in the taxi segment it will position itself as an eco- friendly means of earning higher income with comparatively lower investments.

Distribution Strategies

Sound distribution strategies ensure access of a company’s products and services to its potential target customers in the most cost effective manner. The increase in the distribution costs in today’s highly competitive environment has put tremendous pressure on corporate to reduce this cost and increase its efficiency to gain competitive advantage. Initially Reliable Motors Ltd will negotiate with a leading heavy vehicles manufacturer to represent the company in India to cater to both the target segments. For the middle income group segment the company will market its products by establishing an excellent dealer network and authorized service, recharging and battery swapping stations spread across the country. For the taxi segment the company will market through the dealer network as well as leading auto mechanics in the metros were the demand for the taxi vehicles will be the maximum. Such mechanics will be trained in the skill of servicing the cars which however is expected to be minimal and the same mechanic garages will also be appointed as recharging and battery swapping stations. The logistics will be outsourced to a major logistics firm to store and distribute the cars in the most cost effective way.

Pricing Strategies

Marketing decisions involving pricing are very difficult decisions for any company. Pricing strategies must be coordinated with product, distribution and promotion strategies to form a consistent, effective and integrated marketing program. Pricing strategies are greatly influenced by the decisions made for the other Ps in the Marketing Mix. The pricing objective of the company is to gain a major market share for electric cars in both its target segments. To achieve this objective the company will adopt market penetration pricing in both its target segments.  It will offer the fully loaded version of the car with air conditioning, power window and centralized locking system to the middle income segment at $ 5000. Similarly it will offer the basic version of the car to the taxi segment at $ 4500 with the options to go for up gradation at additional costs. Though the models are priced at a higher level as compared to the entry level gasoline cars this price difference is expected to be offset by the incentives that are to be given by the central and state governments for all the participants in the value chain of electric vehicle manufacturers. The government of the state of Delhi has already taken initiative in this direction. The initial higher price will also be offset by the savings that the owners will have due to the rising gasoline prices.

Communication Mix Strategies

The promotion mix of a company, also called as the communication mix, comprises of advertising, sales promotion, personal selling and public relations. Modern marketing calls for companies to develop and manage an integrated communication strategy to build profitable customers relationships on a long-term basis. This is necessary today as consumers are exposed to communications from a large number of competing brands offering choices as never before.

Reliable Motors has allocated a promotion budget of $2 million for the introduction of its electric car RelElec in the Indian market.  It believes that this it will be a great investment and the company will quickly earn it back. The objectives of the communications strategy will be to create awareness and interest in the new product in general and the brand RelElec in particular and will be advertising centric.

The young, talented, stylish and upcoming tennis star Sania Mirza will be chosen as the brand ambassador. The potential customers in the target segments will be able to associate RelElec with her as she is respected and viewed as a young person with moderate roots who has risen steadily against all odds in a game that is perceived to be new to the country. She embodies energy and a controlled passion for life and is innovative, creative, dependable and exciting like the new RelElec.  She will appear in television campaigns to be aired on networks that run popular soap operas at the prime time. She will also appear on in-store posters, and in company magazines and catalogues. The brand will also be advertised using billboards heavily in big cities as people will be sitting in traffic and they will be more likely to notice these billboards and will have time to reflect on them longer than most communications they see throughout the day. This will also be supported by print advertising in leading magazines and news papers in different parts of the country. However the communication messages will stress on the lower maintenance and higher earning potential for the taxi segment and on its environment friendliness and cost savings for the middle income segment.

The company will also carry out heavy public relations activities at the initial stage.  It will be sending press releases to all of the major newspapers and magazines in all the languages and in all the major cities across the country to stimulate interest.  It will then follow this up with grassroots marketing efforts by having demonstrations on the streets of all the major cities showcasing the new electric car and its features.  There will be scope for the potential customers to try out the car and experience firsthand its performance and its capabilities. All the communication activities will be reinforced by highly trained and friendly sales personnel of the company who will support both the company dealers and the final consumers.

Conclusion

            To sustain and grow in today’s highly competitive business environment companies need to develop innovative products. They also need to take advantage of the opportunities offered by the globalization phenomenon. Reliable Motors Ltd has successfully developed an innovative electric car with the brand name RelElec. To succeed in the newly emerging Indian market it needs to evolve and implement sound marketing strategies.

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