Cielo - A Car in Trouble

Details

Themes : Marketing Mix
Period : 1995-2000
Organization : Daewoo Motors India Limited
Pub Date : 2001
Countries : India
Industry : Automobile & Automotive

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Case Code : MKTG010
Case Length : 8 Pages
Price: Rs. 200;

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The Mistakes Contd...

Daewoo had assumed that there was a huge pent-up demand for cars priced above Rs 0.5 million. The company also banked heavily on demand from the taxi/hotel car fleet and corporate segments. However, most of the above did not materialize the way Daewoo had planned. A Business India report revealed that most prospective Cielo buyers already owned an Esteem, and the decision to buy a second or third car could be postponed.

The liquidity crunch due to the recession in the economy resulted in demand declining sharply - from the individuals as well as the taxi/hotel car fleet and corporate segments. In late 1995, Daewoo realized that it needed to give Cielo a strong push to improve the sales.

The company then devised a promotional campaign, called the 'Diwali Bonanza scheme' for corporates, offering one Cielo free on purchase of every ten cars. This was followed up with a lottery scheme for individuals, wherein the winner was awarded a car. It was revealed later that the promotional scheme was pushed by Daewoo's marketing head from Korea inspite of the Indian managers vehemently opposing it.

A former Daewoo executive said, "There was actually no need of the promotion. People began to look at the car with suspicion." The Cielo had till then been promoted as a feature-rich, luxury family car. The free Cielo scheme did immense damage to the car's brand equity, particularly in north India, which accounted for around 80% of Cielo sales.

The bonanza scheme somehow projected a picture that Daewoo had substantial non-moving Cielo stocks, thereby turning off the 'status-conscious' buyers. Before this scheme, Cielo was selling about 2,500 cars a month, which fell to 100 by the time the scheme ended in early 1996. In its desperation to maintain volumes, Daewoo then began offering hitherto unheard of incentives to dealers and financiers, who in turn passed them on to customers through lower interest rates.

Daewoo and its financiers were even questioned by the Monopolies & Restrictive Trade Practices authorities to explain how its finance rate could be as low as 14.33%, while the prevailing car finance rate was 23%. The company explained it by claiming that it was offering discounts of up to 10% of the car value (Rs 0.6 million) to financiers, provided they reduced the cost to the customer by keeping the interest rate low. Daewoo later claimed that these inquiries were instigated by its competitors to tarnish its image. After the finance schemes, Cielo announced a test drive scheme to lure the buyers in April 1997.

The scheme entitled all car owners to participate in a draw where 200 Cielos were given to the winners for 18 months. On completion of this period, the winners had the option of either buying the car by paying 70% of its original on-road price or returning it to Daewoo. The company claimed to have successfully tried out this scheme in the UK and Korea earlier. The scheme was intended to enhance Cielo's credibility in the marketplace. However, the low finance rates and the test drive schemes faced the same criticism the free Cielo scheme did.

Daewoo's positioning efforts for the Cielo were termed 'unmemorable and poor' by analysts - largely due to the frequent changes in the positioning. Initially the car was positioned on the 'technology with aesthetics' plank, which was later moved on to a 'premium family car' positioning. Analysts remarked that the family-car positioning did not match with the premium image Cielo was trying to project in the beginning. This premium communication began to clash with subsequent value-for-money initiatives that followed. Such moves only ended up confusing the customer.

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