This caselet was written by S. V. Rama Krishna, ICFAI Center for Management Research.

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CLMM- 018

Product Management at Maruti Udyog Limited
Maruti Udyog Limited (MUL), one of the leading passenger car manufacturers in
India, was established in Feb 1981 to develop a small car that meets the need for a
personal mode of transport.
After thoroughly studying seven major automobile players in the world, the
Government of India (GoI) selected the Suzuki Motor Company (now Suzuki Motor
Corporation of Japan) as a strategic partner. Apart from being reckoned as the leader
in the small car segment, Suzukis offer to transfer the latest technology and
management practices to MUL encouraged GoI to choose Suzuki. In October 1982,
the GoI signed a licence and a Joint Venture agreement with Suzuki Motor Company.
This gave Suzuki 26% share of MULs equity.
Maruti started production in a record time of 13 months and rolled out the first car on
14 December 1983. The new car launched by Maruti was a runaway success with
Indian customers preferring it to cars produced by Premier Automobiles Ltd (PAL)
and Hindustan Motors (HM). Maruti created a revolution in the Indian market by
introducing its 800 version that was positioned as a high quality, fuel - efficient, low -
cost vehicle.
Maruti added two more products to its line the Maruti Esteem 1000cc (1991 in
Lower C segment) and the Maruti Zen (1993 in B segment). [Exhibit 1 shows the
various categories in the Indian passenger car market.]
Product Management at Maruti Udyog Limited

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Exhibit 1
Category Models
Economy Segment
(Up to Rs. 2.5 lacs)
(A Segment)
Maruti Omni, Maruti 800
Premium Economy segment
(Rs. 2.75-4.0 lacs)
(B Segment)
Fiat Uno, Zen, Hyundai Santro, Daewoo Matiz,
Tata Indica, Fiat Palio, Suzuki Wagon R.
Lower Mid-Size segment
(Rs. 5-7 lacs)
(C Segment)
Maruti Esteem, Daewoo Cielo, Fiat Siena,
Hyundai Accent, Ford Ikon, Opel Corsa
Upper Mid-Size segment

(Rs.7-10lakhs)
Suzuki Baleno, Mitsubishi Lancer, Opel Astra,
Ford Escort, Honda City
Luxury Segment (Above
Rs.10 lacs)
(D segment)
Skoda Octavia, Honda Accord, Hyundai
Sonata, Ford Mondeo, Mercedes C-Class
Premium Luxury Segment
(From 30 to 60 Lacs)
Mercedes E & S Classes.

By March 1994, Maruti became the first Indian company to produce over one million
vehicles. The Indian car market which had stagnated at a volume of 30,000 or 40,000
cars a year for the decade ending 1983 had by 1993 reached a volume of 1,96,820.
Maruti enjoyed about 80% share of the market. For over a decade after MUL's
inception, the government kept the passenger car market closed to new entrants.
After observing the success of Maruti in revitalizing a rather stagnant Indian
automobile market and the passenger car segment in particular, global automobile
giants started showing an interest in the Indian automobile market. These companies
realized the growing might of the Indian middle class and commissioned surveys and
studies to estimate the feasibility for their proposed projects and the volumes that they
can achieve. Some of these companies began test running imported vehicles in India
to evaluate their fit to Indian conditions.
Product Management at Maruti Udyog Limited


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When the auto sector was completely opened up in 1995, MUL was entrenched in the
Indian market, harvesting the benefits from economies of scale and scope. MUL had
also developed a reliable supplier base to support its future growth. In the small car
segment, where MUL had a strong presence, the entry barrier for new entrants was
much too high. It was considered impossible for new players to compete with MUL
unless they had a thorough understanding of the Indian market and technical
competence.
However, two multinationals from South Korea, Daewoo (Matiz) and Hyundai
(Santro), gradually got into the small car market. The competition in this segment
intensified with the entry of Tata Engineering with its indigenously developed car,
Tata Indica. Many other multinationals, however, stuck to the small but potentially
more profitable mid-size and luxury cars.
Soon these players started eating into MULs share in the small car market. This sent
clear signals to MUL that fuel economy was no longer the major value proposition for
the Indian consumer. To arrest the erosion in market share, MUL launched new
models like Wagon R and Alto in the B segment. The Alto, is a 1000cc small car
whose features include a 16 valve aluminum engine. The car is intended to create a
new niche between the basic 800 model (M800) and the Zen and will tackle the
problem of model fatigue that is faced by the company's existing models.
At present, A & B segment cars account for over 83% of the total units sold in the
passenger car market. In the entry level, A segment, MUL enjoys a monopoly status
with its M800 model, which sold nearly 12,000 units per month in 2003. In the B
segment however is very different. While MUL has three different models in the
segment (Zen, Alto, Wagon R), commanding a combined market share of 43% in
FY03, Hyundais Santro is the clear segment leader. The Santro currently clocks an
average of 7000 units/month, with a market share of 30% in FY03. The other key
player in the segment is Tatas Indica V2, with a market share of 26%. The C
segment accounted for just 15.5% of the total car market in FY03, with Hyundais
Accent being the market leader. Tatas Indigo is the latest entrant in this segment.
MUL expects the competition within this segment to remain highly intense with a
host of new model launches planned by Ford, GM, Honda, Hyundai and Telco. The
premium-end D and E segments have a very marginal presence in overall volumes.
Product Management at Maruti Udyog Limited


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Questions for Discussion:
1. What are the various factors that led to the success of the Maruti 800 (M800)?
2. Why did a majority of the new entrants choose to enter India by targeting the B
segment car market?
3. What are the factors that led to the launch of Alto by Maruti? What is the role of
Alto in the product mix of Maruti?