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Monday, October 26, 2015

7 reasons why Maruti’s Nexa premium dealership strategy is wrong!

Maruti, India’s largest carmaker has launched a series of premium showrooms, called Nexa. Nexa is Maruti’s attempt to sell high price cars to cash rich customers, by offering more spacious, more detailed, more courteous and more premium showroom experience when they visit a Maruti showroom.

Looks good on paper, but Maruti doesn’t really have enough premium cars to sell at these Nexa premium showrooms. So I find this premium showroom strategy very confusing. As a consumer where should I go and when?
SX4 Cross in Denmark, spotted before it was launched in India
Consider these, there are my 7 reasons why Nexa is a bad idea at this moment:
1.       Initially it is said that only premium cars will be sold at Nexa. Definition of premium being cars priced above 8 lakhs. But most of Maruti’s models have their cheaper variants priced below 8 lakhs while top spec variants crossing 8 lakhs. So should I go to regular showroom for LXI/VDi variant and to Nexa for ZXi/ZDi?

2.       Most of the new launches like Baleno and SX4 cross are being routed to Nexa. But these are priced almost at par with other budget cars (Swift, Dzire, Ertiga). Baleno price range starts at 5 lakhs ex-showroom Delhi. So what is premium about it?

3.       Wont the dealers who invested in regular Maruti showroom feel cheated that new models are not being sold in their showrooms?

4.       Upselling is going to be a challenge. Suppose a customer walks in into regular Maruti showroom asking for Swift. Salesperson feels this guy has budget and interest to buy a Baleno. But now Baleno is being sold in a different showroom in other part of town. If sales person asks the prospect to go to Nexa, there is no guarantee that prospect will go all the way- he might book a car at a competitor showroom enroute. If Baleno was available in same roof, a more profitable sale could have been stuck on the spot.

5.       Overhead costs: Assume that it costs 5 lakh rupees per month to run a car showroom (rent, salary, maintenance expense etc). If a regular maruti showroom is selling say 100 cars per month, then they need to earn Rs 5000 per car to breakeven the operating costs. A premium showroom will have same or higher expense- but if premium showroom sells only 10 cars per month, then they need to earn Rs 50000 per car. As a consumer, would you may much more to a car against the promise of “premium experience? It is a tricky situation for Nexa- they need higher numbers to make profit, but higher number means more crowd and less differentiation between Nexa and regular Maruti showrooms. As a customer are you willing to pay more for a premium showroom experience (a welcome drink, less crowded showroom and an over courteous staff) for an ordinary car?

6.       Nexa showrooms are very few in number per city. Would you drive 20kms extra to a Nexa showroom for ‘premium’ experience or prefer to get your work done at a regular Maruti showroom/service centre near your home/office? Even for prospects, it is unnecessary confusion and extra traveling visiting dual showrooms.

7.       Nissan has done a smart move by selling Datsun inside Nissan showrooms. Maruti’s premium showroom concept would have worked well if they stick to the rule that only 10 lakh+ cars will be sold via Nexa. But Maruti is diluting Nexa by selling much cheaper cars also in nexa, thereby reducing gap between Nexa and rest of standard showrooms. In fact the overlapping price range will only add to confusion, rivalry among dealers.

I hope Maruti’s strategy pays off. But to make Nexa a success Maruti needs to produce more premium cars and try selling them to rich customers. Along with new showroom name, Maruti should have probably created a new subsidiary altogether (like how VW group has VW brand for cheaper variants and Audi brand for expensive/luxurious cars (though both brands may use same engines, production facilities etc)). Nevertheless, Maruti has been successful so far and I am sure they can make Nexa concept work. So best wishes to them.
Do share your thoughts on this topic.

Also read: Maruti Ciaz VXi+ Automatic review *  Tata Nano AMT vs Alto AMT * Ertiga VDi- review *

26 comments :

Nischal said...

well thought through, i agree with all your point here!

Shrinidhi Hande said...

Thanks Nishchal

The wild said...

In India there is so much demand ,i dont think the average customer will think so much.

There are enough people who want to experience a luxury experience ,most of them would have drivers ,so the distance will not matter.

Shrinidhi Hande said...

Those to employ driver can usually afford more expensive cars and buy cars in 15 lakhs+ price range. Not many hire a driver for a hatchback. Majority of Maruti's customers are middle class family who are price sensitive.

Yes there is market for premium experience, but that should be complemented by premium products. No one prefers to pay more for regular product+ premium experience at showroom.

Roshan Radhakrishnan said...

I agree... not sure what they looked to achieve but I fear they may not get there. Besides, from what I see, there are still many better options than this PREMIUM package released now, which itself undermines the whole point.

Arun Prasadh said...

Yes and S-Cross surely doesn't qualify as premium brand. A midst heavy competition Maruthi should not be doing these mistakes.

Shrinidhi Hande said...

@Arun Prasad.. yes. I agree. S-Cross and Baleno do not have anything so premium about it. A premium car should have lots of power, lots of safety features, premium interiors and may be a sunroof etc.

@Roshan- correct, they are mixing things up and confusing everyone. let us see how this model grows over time.

priti gupta said...

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The wild said...

Going by what you say they must close down in 2-3 months with no business ,let me know what happens

Shrinidhi Hande said...

@The Wild- you got me wrong. I didn't say that it will close in 2-3 months. Rich business houses can afford to sustain new ventures for few years even if they don't break even- flipkart is running since ages without making any profits, Kingfisher ran without profits for years... Maruti can certainly sustain NEXA for considerable time before deciding to pull the plug, if situation so demands.

My main concern is no clear distinction between regular and premium showrooms- even 5-6 lakh cars are sold in premium showroom- causing confusion. This is not something nobody can correct . Let us hope all works well for Nexa or Maruti applies necessary corrections in time.

Dhananjay said...

Like Hyundai they have different sales show room and service is in different locations. Will be the same with Maruti, is Baleno and nexus have different service station or is it same with other car service centre.

Shrinidhi Hande said...

Do not know that part yet...

Vikram Chauhan said...

In Himachal we don't have any nexa showroom???? Baleno would have been super successful if sold at maruti dealership.

Shrinidhi Hande said...

No idea about Himachal. I think tier 2 cities will have to wait longer for a Nexa showroom

Dhananjay said...

To your point number 4. Maurthi is offering non-nexa dealers almost 50% revenue share of margins for every converted lead to Nexa.

Shrinidhi Hande said...

Yes, recently read about it. But that is assuming effective tracking..

Srinivas P said...

I think what Maruti should have done is create another brand for premium vehicles rather than create premium showrooms to sell the same brand. They should have followed the successful concept employed by some of the top automobile companies like Toyota, Honda, and Nissan. In the West and elsewhere, these brands have separate showrooms to sell their regular brands as well as their premium cousins like Lexus, Acura, and Infiniti respectively. Each brand enjoys its own market share and comes up with their own marketing and sales strategies which I think is good for both the consumers as well as for the companies.

Shrinidhi Hande said...

True. Very good point.

Alok Katiyar said...

Is maruti S-Cross no more manufacture in 2016 as of higher price and less popularity in indian Market..

Shrinidhi Hande said...

@not sure if production has stopped. Yes, S-Cross is not selling in large numbers. It is let down by poor styling and high pricing. Hyundai Creta is also stealing most of Duster and S Cross customers. I see few of them at nearby NEXA dealerships.

Rajiv Noronha said...

Good analysis and a bad move by Maruti. Insptie of being premium car sellers Nexa showrooms care a damn about service orientation. Dozen mails to their so called Relationship manager go unanwered. They have a mail ID contact@nexa from where you dont even get a response after several mails....Even if they get the 10 lakh and above cars the Nexa service and experience which I personally felt would ensure the concept fails. Advantage Mahindra, Advantage Hyundai Thanks to Nexa poor experience. Figures of sCross sales will speak for themselves... CRETA has beaten them hollow #Nexaexperience #nexa

Shrinidhi Hande said...

@Rajiv- which city and dealership you faced that experience? I hope it is an isolated incident and not same in all NEXA dealerships.

s Cross is being given 2 lakh+ discount to push sales, but Baleno is doing very well. So I think issue is more specific to car model, not entire dealership.

Thanks for your comments

Rajiv Noronha said...

@Shrinidhi, NOt sure if Baleno is really a premium car at all... for its pricing it could have done much better if sold in regular Maruti sales outlest at least pricing would be in favor of customer. Car is selling for fuel efficiency and nothing to do with premium quality.... on selling premium products every step of your service has to be classy... after all premium products sell a good bit by word of mouth and good reviews and not by discounts ... the fact they are giving discounts in year 1 shows its a slow mover and what more can you expect if their service is so pathetic. Also the response is same in showroom at Bangalore as it is on their NEXAEXPERIENCE help desk..

Shrinidhi Hande said...

@Rajiv- Agree. Maruti has its task cut to fix this Nexa strategy

Ankur Gupta said...

The company has long vision to sustain growth in decent double digits. It affects short term targets that is creating a brand volatility. It will sustain as long as we continue to love the brand and brand adapts to the community.

Shrinidhi Hande said...

Seems like a generic comment. Anyway thanks