Maruti Udyog Limited - The Pricing Dilemma

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Case Details:

Case Code : MKTG100
Case Length : 15 Pages
Period : 1995-2004
Pub Date : 2005
Teaching Note :Not Available
Organization : Maruti
Industry : Passenger Car
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"There is absolutely no question of phasing out the Maruti 800. Why would anybody want to stop producing the car that is selling so well? As long as the customer demands it, we will continue to produce the 800."¹

- Jagdish Khattar, Managing Director, Maruti Udyog Limited.

"There is no fault in what Khattar is doing. Upgrading people from two-wheelers is a great idea. But there is one problem. This is the high-volume-low-margin game. If volumes don't come through, the company could be in trouble."²

- Rama Bijapurkar, Strategic Marketing Consultant.

The Competition

Since 1985, Maruti Udyog Limited (MUL) has been the market leader in the passenger car industry in India. Its flagship product - M800 had the distinction of being the largest selling car model in India since its launch in December 1983.

Positioned as people's car, M800 ruled the Indian passenger car market and remained unchallenged ever since it occupied the top slot, five months after its introduction.

In March 2003, MUL sold 20,687 units of M800, the highest ever sales by any single model in a month. It was also the highest sales since M800 debuted, surpassing its previous monthly high of 18,735 units in August 1999.

For the first few months of 2004, M800 performed well, selling 15,301 units in January, 13,518 units in February and 15,540 in March. But gradually Alto, another MUL product, began eating into M800's share. Alto reported sales of 8,399 units, 8,324 and 9,011 units in January, February and March respectively.

In April, its sales increased to 9,350 units and in May 2004, Alto took over M800's position as the largest selling car with sale of 10,373 units, slightly over M800's sales of 10,016 units. Analysts felt that Alto had taken the top spot because of its price reduction in September 2003 by Rs. 23,000 followed by the launch of the non-AC Alto for Rs. 0.23 mn in the first week of April 2004. On reducing the gap between its bread and butter model M800 and its compact car Alto, MUL said it had "long term" plans for M800. Commenting on Alto's pricing strategy, Jagdish Khattar (Khattar), managing director of MUL, said, "The new price positioning of the Alto would cannibalize existing A1 segment product the M800 which is also considered an old model.

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1] Gaurav Raghuvanshi, "Maruti 800's many lives," www.thehindubusinessline.com, October 28, 2004.

2] M Rajsekhar, "Maruti Udyog: Defence as Offence," Businessworld, November 17, 2003.