Monthly Archives: November 2014

Why after-sales service lacks the sting…….?

After-sales service is often seen as necessary devil and not many organizations think about the impact it has on revenues and customer satisfaction. This is despite the fact that dealers and OEM’s margins on the virgin equipment may be less than 2-3% of the final price, while parts revenues can hover around 25++ margins.

The biggest cause for lack of proper after-sales service is that many organizations have no proper service strategy aligned with their organizational goals. Many adopt the concept of “Outsourcing of parts logistics” without realizing the zone of conflicts it can create and the impact. The idea to make cost efficient parts supply and distribution is appreciated, but this doesn’t synchronize with the field customer service. Worst part, is that various divisions work at loggerheads within the organization, causing a lack of cohesion between the field service and parts supply. The parts and service aspect of an automotive organization go hand-in-hand.

More than 60% of parts per vehicle, on an average, are out-sourced by the OEMs from individual parts supplier. In order to avoid risk, OEMs develop 4-5 vendors per part when 2-3 vendors are more than sufficient. This policy of the OEM forces these suppliers to supply in the open market to increase revenues. Moreover, Parts supply and parts sales in open market are more profitable than sales through the respective OEMs. This inevitably leads to revenue loss from services for the OEM.

Product development regulations are pretty high in developed nations, leading to high quality. Hence, minimum levels of Standard Operating Procedures (SOP) for service are adequate to ensure there is no cause for complaint from consumers. When the same SOPs are implemented in the Indian market, it leads to service failure due to the lower quality of components. When the foreign culture of highly reliable and innovative product doesn’t exist in the cost conscious Indian automotive industry, then why does the after-sales service strategy and policy remain the same for both the markets?

With a specialized mechanic in every corner of the street providing service at cheaper rates and the availability of cheaper spare parts in grey market, the dealership revenues are in doldrums. The automation and IT infra-structure connecting the OEM and dealerships is not robust and not fool-proof. Moreover, the revenue generating model for the dealerships is not very sustainable in the long-run especially during economically low periods, considering the huge infrastructure investment made by each dealership of an OEM. All these factors induce the dealer to purchase from grey market and eventually, a loss for the OEM occurs.

The Indian Automotive Industry is moving towards technology saturation. There is no substantial product variation, especially in terms of technology. Brand differentiation can only be improved through an effective and efficient after-sales service channel. Issues such as development and implementation of a sustainable after-sales strategy, with focus on number of parts suppliers, India centric SOPs for service, and not outsourcing the parts logistics, are just tip of the iceberg issues that need to be grappled with. There needs to be a well thought out and integrated service strategy specific to local markets, since it is a substantial revenue stream that will improve bottom line and help companies tide out the troughs in sales!!!

Bangaru Vignesh

Junior Consultant – Marketing & Strategy

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Late but not too late; late market entry strategies

Nobody remembers the second person who climbed Mt. Everest or set foot on moon. Why? Because we have a culture in which only the pioneers are revered. Everyone is in a hustle to get that one sacred spot on top. 21st century companies are no different than the humans in this endeavor. They crave to become the pioneers in their respective fields even though it comes at a huge cost and risk. But is that the only way to enter a market? The answer is no! The good news is that late market entrants can also make substantial profits and at times outperform pioneers with right set of marketing strategies at hand. Let’s dig deeper into these strategies.

Penetration pricing is one of the classic strategies used by the late entrants while entering an already cluttered market. The prices are set lower than those of incumbents to attract the customers. This pricing mechanism assumes that the customers will switch to the new offerings if the price is low. Take Xiaomi for that matter. This upstart Chinese electronic company has been successfully selling smart phones in the highly competitive Indian market. Apart from their innovative distribution strategy and low cost of production, their pricing is one of the main reasons for the success. Xiaomi phones are comparatively cheaper than any other smart phone with the similar features. With this strategy, they have managed to taste success in the market, and will most likely follow up with high end products once a brand name gets established. They have been able to identify the gap i.e. non availability of an affordable smart phone with the features of a high class smart phone. This brings us to the next late entrant strategy.

No matter how good or successful a product or a service is, there is always a scope for improvement. This is mantra of the late market entrants. By identifying the gaps in the current offerings of the pioneers, some of the companies have been able to differentiate their offerings to gain the market share. The Indian truck market was dominated by companies like Ashok Leyland and Tata before Volvo entered. Leyland and Tata trucks used to take around 6 days to travel from Bangalore to Delhi, were uncomfortable, difficult to drive and maneuver, and had reliability issues. Volvo cleverly identified this gap and came up with trucks though more expensive, adopted a value based pricing strategy, and pitched on total cost of ownership, business benefits over the long term (like more load carrying capacity, lesser inventory on road, higher safely and comfort for drivers, reliability and 24 hour service by Volvo). Leveraging existing gaps, and educating consumers on long term benefits, Volvo has successfully managed to enter the market with high priced products.

Niche marketing is another strategy followed by the late entrants. A peculiar segment of the market is targeted which is unexploited by any other players. The rise of specialty hospitals and Montessori schools are some examples of niche marketing. Chobani yoghurt which entered US market 9 years later than the pioneer Fage total yoghurt has been tremendously successful because of niche marketing. Unlike other strategies, niche marketing strategy doesn’t require “demand generation”. The demand is already there, only the identification and exploitation of the demand with the correct offerings is required.

Therefore, when presented with opportunities to enter a new market, companies need to take a step back and evaluate their options before taking the leap. After all, it’s not about grabbing the first position but rather about making more profits and establishing a brand, and being in business for the long haul.

Ajita Poudel

Young Dolphin Fellowship

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