The 2 questions haunting Honda3 min read . Updated: 31 Jul 2015, 02:20 AM IST
Honda has to find out why it isn't popular with first-time car buyers and figure out whether it wants to be in the taxi mark
A casual chat with a top executive at Honda Cars India Ltd on the sidelines of the new Jazz’s launch in Mumbai last week gave an inkling of some questions that are occupying mind space at the local arm of the Japanese car maker.
Aggressive new model launches in the last year-and-a-half with a high share of locally produced parts has helped Honda return to the reckoning in the Indian car market, making it the third largest in the pecking order now.
But the brand still is not on the radar of someone who has never experienced or owned a car. The poor sales of Honda’s entry small car model Brio, which was aimed at first-time buyers but averages sales of only 1,000 units a month, is evidence of that.
Honda can draw some solace from its new generation City, which has seen the number of first timers go up sharply—to 20% from 9% of all customers-- but the trend is not all-pervasive across all the models.
Not surprisingly, the increase doesn’t enthuse Honda executives much. Here is why. Typically, a buyer of the City is someone who may not have owned a car but has grown up in a family that has owned one. Therefore, he or she doesn’t qualify as a first-time buyer in the true sense. Only someone who has never experienced or owned a car fits the definition of a first timer. These are the buyers all carmakers in India want to entice.
Honda is not alone. Several global carmakers have seen their aspirations of making it big in the entry-level, small-car segment turning into a pipe dream with first time buyers either developing cold feet and postponing purchases or preferring the tried and tested models from market leaders Maruti Suzuki India Ltd and Hyundai Motor India Ltd.
But why are first timers such an attractive market and what is it that India’s top two carmakers are doing right?
The acquisition cost of a new customer and getting her to upgrade to a premium model is much higher compared to someone who has already experienced the brand. Therefore, the earlier one is able to crack it, the better. For instance, compared to a Honda, it will be easier for a Hyundai to get an Eon or i10 owner to upgrade to a sedan.
Lastly and most importantly, with a competitive product and price positioning and early entry, companies also have to manage the brand perception of the average car buyer. As much as Suzuki is a synonym for small cars, Honda is for premium ones. Therefore, getting into each other’s strongholds or trying to break free from the popular perception will be a daunting task unless the car offers a compelling enough proposition to the buyer.
To be sure, it’s equally challenging for a small car maker, which has always addressed first-time buyers, to appeal to buyers of premium models. The criticality of managing brand perception can be best demonstrated by Maruti Suzuki recently announcing plans to open dedicated outlets under the Nexa brand to sell premium models—the first of which, called the S-Cross, will be launched next month.
There’s yet another important emerging trend which Honda cannot ignore. For long, carmakers in India have been faced with an existential dilemma regarding a presence in the commercial fleet market.
More so after the experience of Tata Motors Ltd, which saw its brand perception taking an irreparable hit due to a prominent presence in the taxi market. However, with car aggregators like Uber Inc and Ola ANI Technologies Ltd gaining traction in Indian market, more and more cars with yellow name plates are seen on the roads—an indication that in line with the mature markets, carmakers in India too are warming up to the idea of allowing tourist permits even for best-selling models.
Even as others like Toyota Kirloskar Motor, Maruti Suzuki, and even smaller rivals like Renault India Pvt Ltd see this as an opportunity to push sales volumes with specific models to address the market, Honda, which as a global policy doesn’t sell cars to commercial buyers, has been watching from the sidelines.
That has limited the carmaker’s potential to sell higher units of a model like the Mobilio—a multi-purpose vehicle. “It’s an interesting point and I would say there’s nothing right or wrong in being present (in the taxi market)," Jnaneswar Sen, senior vice president, sales and marketing at Honda Cars India, said intriguingly, as we moved out of the conference hall.