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Cross badging – what are the implications?

R Jayaraman

Author: R Jayaraman

Date: Fri, 2018-05-04 14:25

The term “cross badging”, or “badge engineering” entered the lexicon in India sometime in early 2012. Examples are Micra / Pulse, Sunny/Scala, Terrano / Duster (all Nissan / Renault) combos. Similarly, Vento (VW)/ Rapid (Skoda). Tata and Fiat tried to tango, but became untangled soon. Same with Renault and Mahindra. So, why are Maruti and Toyota trying the same failed move again?

The logic is totally unclear. Two cars – with two different names – but looking the same, is one reminded of the ball tampering incidents? Appears like car companies are trying to cheat their customers, trying to take them for a ride, so to say, although that is their USP, when you look at it in the right way. So, where is the catch?

It is common practice that auto majors use the platform strategy to cut down on engineering costs, time to market, advertising  and other distribution costs by manufacturing using the same body. However, the names under which these are sold are quite different in different countries. For example, the Qualis, which morphed into the Innova, in India, was sold in Indonesia under the name “Kijang” for some years, before appearing in India as Qualis. This is a sensible strategy. Make a new car, introduce in a single market, get the learnings, and then roll out in other markets, with localisations, but using the same platform. This works, as, in the case of the Qualis, very few in India knew that the Kijang is the same car, but with a different name. This could be “not in sight”, “not registered in mind” type of a situation.

The car company is using the fact that, in spite of globalisation, familiarity of customers in different locations, with the several names, is not often high. On the contrary, selling the same car under two or more names in the same location is like using a ten rupee note with different pictures and colours in the same country, which will lead to confusion, counterfeiting and what not.

The platform strategy is useful as a great profit generating engine. In this strategy, one company engineers and produces the basic model. Then, adding bells and whistles, to embellish the base, the company rolls out a full suite of models, to cover a price range. The higher prices charged for the “higher” level models,  makes the profit picture rosy. This has been the strategy used in India and many other countries, by all auto companies, and customers are OK with this, as they understand the logic. For example, one can buy an Omni at a very low price, because it doesn’t come with an A/C. Similarly, one is willing to pay upto 4 lakhs for variants of the Maruti Alto, based on the accompaniments. This strategy has the effect of increasing the price tag, disproportionate to the cost increase, and provides a legitimate way to earn an extra rupee, sometimes even to subside the non-profitable low end models. However, cross badging forms no part of this strategy.

What, then, can be the reasons that Maruti and Toyota are looking at cross badging? The cars being mentioned are Brezza, Baleno and Corolla. It is clear that the companies are trying to build up their coverage of the market. Each one of these vehicles is a successfully selling car. Maruti has a completre coverage of the low end of the market, and is slowly moving upo the value chain through Brezza, Baleno, Ciaz and Ertiga. However, this comes at a steep cost – engineering, testing, etc. Also, Maruit does not have any car in the Corolla range, except the Ciaz. Thus, by bringing in the Corolla, Maruti can hopefully speed up its market coverage in the upper, and become the GM of India.

Whereas, Toyota is a niche player, with the Innova being the bulk seller, at about 75,000 per annum. The other best seller is the Fortuner, at about 10,500 last FY. Total Toyota sales for FY 2017-18 was about 143,000, whereas Maruti was doing 1.7 million. The reach of Maruti is unmatchable, especially in the rural areas. For Toyota to start doing the Maruti volumes will need a hefty investment in the distribution network, apart from the time issue, as well as the range issue. If at all Toyota wants be the number 2 to Maruti, then it needs to have a broader range of models, to cover the lowest to the highest price range. That would be following the lead of GM’s Alfred Sloan, who invented the theory of “a car at every price point”. And that can happen by the cross badging.

Maruti has done this quite well in India, with a very strong base, on which it is trying to erect the sedan/MUV/SUV/Luxury segments. The beginning has been successful. However, to give this strategy a kick start, nothing like selling the Corolla, and a few other sedans from the Toyota stable. Maruti is clearly hoping that it can sell 5,000+ Corollas, in addition to the 5,500 Ciaz;s. Toyota will be looking to complement its Etios range with the fully engineered, road tested Brezza and Baleno, to increase its volumes. While Toyota will benefit from the distribution width, Maruti will benefit from the sedan depth. It can avoid the costly engineering that it must have incurred in the Ciaz and Ertiga. No doubt, there is a synergy, unlike any of the earlier cases of cross badging. However, there is a catch.

Every car from a company, develops, over the years, a certain “vaasna”, a sort of karmic baggage. This is a bundle of emotions, developed largely through the experiences, from the time the customer sees the ad, to the time he goes to the distributor, buys the car, drives it, and then has a feeling of “paisa vasool” (value for money). The degree of the “paisa vasool” feeling is what makes a customer stick to a company. This can be seriously affected if the cross badged cars are not able to fit into the emotional connect due to the fact that the car was manufactured by another company. Like, a car without a “mai baap”. No lineage. No “ownership” feeling. The purchase of another company’s car from your regular company can still leave you with a feeling of “ye kya ho raha hai” (what’s going on). And no strategy can address this aspect. On paper, there might appear to be a mutual fit and benefit, but beyond the paper, there is a real world too.

 

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