Cielo – A Car In Trouble
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THE BIGGEST BLUNDER? Contd..Daewoo's move took
the industry players as well as the customers by surprise. It was even
reported that a leading Daewoo competitor sent anonymous letters to
automobile dealers on ‘how the price reduction had seriously eroded customer
confidence in Cielo and was done mainly for the 1996 models stuck in their
stock.'However, Awasthi preferred to call it ‘price correction,'saying
that the price slash had been possible because of the company's achieving a
higher indigenisation level (70.10%) and better foreign exchange management.
He added that the decision was in line with Daewoo's global strategy of
working on lower margins.
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Ten days before the price cut announcement, Daewoo had
stopped delivering the Cielo to showrooms, hoping to minimize the impact
of the price reduction on recent customers. To ensure that existing
customers did not feel cheated, the company wrote to each customer
individually. They were offered the first bookings for Daewoo's yet to
be launched small car, besides a customized package of free servicing.
They were also explained how the price change did not really compromise
the price they had paid. Daewoo held meetings with senior managers from
its regional offices, dealers and the finance companies to explain the
rationale behind the price cut.
Daewoo also began monitoring the reactions to the price correction by
sending out nearly 1,50,000 letters to the public. In addition to each
of the existing Cielo customers, potential buyers – companies,
Government and professionals like chartered accountants and doctors were
targeted. Each dealership was put under watch by the regional managers
to remove any feelings of ‘betrayal'in old customers. |
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Immediately after the price cut, Cielo's sales increased to
906 per month in January and February 1998 compared to 314 units in December
1997. Although Cielo became the cheapest mid-size car in the Indian market, this
move almost wiped out the car's credibility in the market. After the price
reduction, Daewoo had to work very hard towards salvaging the car's image. This
was done by the new ‘value benefits'positioning for Cielo in the mid-size
segment. Daewoo launched the ‘Valyou'campaign designed to educate the customer
on the new positioning, highlighting the Cielo's features. The idea was to
convey that the Cielo now offered more value for less money and not just the
same value for less money. Thus, the aspects of Technology Valyou, Comfort
Valyou, and Safety Valyou were emphasized. As a result of these initiatives, in
March 1998 sales went further up to 1102 cars.
For 1997-98, Daewoo increased its advertising budget substantially and released
double-page advertisements in leading national dailies carrying pictures of a
range of automobiles. This was done to give confidence to customers that Daewoo
was not just a single-product company. Also, whereas the earlier advertising
focussed on Cielo, it now focussed on the Daewoo brand in the same way as other
multinational car brands did. However, these moves failed to have the desired
effect and as predicted by industry analysts, the impact of the price cut and
new campaigns soon wore off - by February 1999, sales fell to a low of 148 cars
per month.
SHIFTING THE FOCUS TO MATIZ
In October 1998, Daewoo launched its small car ‘Matiz,'which soon became very
popular amongst the customers. Though Matiz did not fare as well as its rival
Santro (from Hyundai) initially, over the next few months, its demand increased
significantly. While 23,265 units were sold during April-December 1999, demand
increased by 52.2% to 35,398 cars during April-December 2000.
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QUESTIONS FOR DISCUSSION
EXHIBIT I CATEGORIZING INDIAN CARS
ADDITIONAL READINGS & REFERENCES
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