Interview with Gerrit Kuyntjes & Mohit Arora of J.D. Power Asia Pacific

Company Description: J.D. Power and Associates is a US based global marketing information services firm founded in 1968 by James David Power III. The firm conducts surveys of customer satisfaction, product quality, and buyer behavior for industries ranging from cars to marketing and advertising firms. The firm is best known for its customer satisfaction research on new-car quality and long-term dependability. Its service offerings include industry-wide syndicated studies, proprietary research, consulting, training, and automotive forecasting.

JD Power has been offering its automotive consultancy services for more than a decade. How do you see your ratings evolving vis-à-vis buying patterns in India?

GK: We started in India with the syndicated strategy system. As an organisation, we actually invested in our own research unlike our peers. We conduct research on behalf of our customers and independently determine the benchmark performance for the automobile industry. Those reports actually become a health check for the industry. Most of our customers purchase our syndicated market reports. Today, apart from doing a syndicated research we are actively involved with our clients to work on improving their products’ quality as well services offered to their customers. We also help them in enhancing the quality of the dealer networks by proving them a health card. So we actually work with these manufacturers to redevelop their service processes which are aligned with the customer’s expectations.

MA: Adding to what Mr. Kuyntjes has said, a car bought 10 years back, in terms of feature and performance content, was very much bare bones. The distribution network of the carmakers was not that dense at that point of time. But now, OEMs are looking at providing not only content-rich cars but are also improving the quality of their products and services. They are basically providing the right experience at the dealer’s end. I think from that perspective, our offerings have also changed dramatically over the last two years. We are looking at identifying the gaps of the carmakers and filling it.  As the market evolves, we are now providing very sophisticated marketing solutions which cater to car buyers with different tastes and aspirations across different geographies.

Is India a promising market?

GK:  The investments in the infrastructure sector are already pouring in. The automotive industry is capital intensive and the investment plans by all the global OEMs are fairly on track. These global automakers have already understood where India is going to be in the next decade.

MA: Yes, India is a very promising market.  Above all, we are looking at a base of first-time buyers. Right now, 50-55pc of the customers in India are first-time buyers. Going forward, we are going to see a larger proportion of buyers making a first-time purchase. As a result, you will have a bigger base of customers to service. While this is good news on one side, it also brings its own set of challenges on the other side. Generally speaking, India is heading into the right direction where you are looking at increased number of vehicle sales. But whether it will hit 9.3 million units or 9.9 million units, it is very difficult to predict.  However, India will figure among the top three markets in the world in the next decade.

Do you think global OEMs will leverage India as an export hub to emerging markets?

MA: I think the primary driver will be the domestic market rather than an export base for supplies internationally. Unfortunately, India is not like Thailand where any company can establish a manufacturing base to cater to global markets. From the policy perspective, India clearly needs to incentivise manufacturers.  Although some companies like Hyundai, Maruti, Nissan, etc have done so to  a limited extent in the past, some sort of encouragement needs to be provided by the government in actively wooing global companies to come to India and set up a base for global supply. Furthermore, India offers a great opportunity for the suppliers which has to be capitalised. India has done better when it comes to setting up an R&D base.

You have maintained that China has robust growth as opposed to India because it is not market driven. Can you please elaborate?

MA: We are trying to illustrate the fact that in India, a large percentage of sales is driven by an individual enterprise. It is more from the domestic growth perspective that is attracting these companies to set up a base here. In China, it is the other way round where the government is actually incentivising the global automakers to set up a footprint there.  It is more from their policy perspective where the government said it needs to bring in better technology in the market and declare auto industry as one of the core sectors of the economy.

GK: The scenario is different in China where there is a maximum amount of FDI flowing in. The volumes have reached a significant threshold. The OEMs have tied up with domestic firms there.

The Indian government is aggressively planning to price diesel at par with petrol prices. So what impact will it have on people’s sentiments?

MA: I still think there will be some amount of difference between the average retail price of diesel and petrol. In terms of fuel efficiency and low-end torque performance, diesel-driven cars definitely have an edge. Earlier, the consumers still think that such cars are high on maintenance vis-à-vis petrol-driven ones. But these perceptions have changed over time as some of the gaps have been bridged.  As the disparity between petrol and diesel prices reduces, consumers are going to have a greater propensity toward petrol version of an existing model. But it is very difficult to forecast whether there will be a radical shift to petrol or diesel run cars. This is because consumers tend to be a bit more irrational in the purchase decision.  A person who is driving 12,000km/year doesn’t need to shift to a higher-priced diesel version as it doesn’t pay off before three years.

Talking about a specific company, don’t you think Tata Motors needs to come out with some revival strategies to arrest the sagging sales of its passenger vehicles?

MA: At this point of time, from a vehicle sales strategy point of view, many companies need to relook at their portfolios. But Tata Motors is clearly a bigger case in point. I think they are trying to look inside to improve their operational effectiveness, product quality and distribution efficiency and the overall experience that is provided to its customers. But I think some of these initiatives have come a bit late in the day. I can say that the brand name ‘Tata’ enjoys a huge amount of thrust and is very formidable. Tata enjoys a huge amount of trust among the average Indian population. Everything is not lost for them as there is clearly some opportunity for them to turn around. A strong product lineup, a dramatic improvement in product quality, and a massive improvement in the network performance in terms of morale, effectiveness, etc are the areas they need to focus on. Let see how it goes.

Considering the fact that an ultra-cheap car like Nano has not done too well, do you still think that brands like ‘Datsun’ will be a proven success?

MA: First of all, I would like to state that Nano is still a ‘Tata’ brand. It is one of the products under the Tata stable. With the ‘Datsun’, it is an arrival of a new brand coming in. It is an old brand (in overseas countries) which will now be revived in emerging countries like India. From that perspective, the dual-brand strategy has not really worked in India because the market is not matured enough. While a brand continues to be a very strong reason to purchase, its positioning is not very clear in the minds of the customer. With the Nissan, what I can say is that its brand positioning is itself not very clear. It is very early days for them. It’s a fairly large country and it takes a lot of time for the people to really associate with the brand.  So from that perspective, it is too early for Datsun.  But again, the automobile market is all about experimentation and trying out new things. Maybe we can create a case study out of that.  Looking at the marketplace at this point of time, it is definitely going to be a challenge for them.

Do you think multi-branded service outfits can find favour in India?

MA: For an average Indian customer, a greater choice is always good. But at the same time you need to understand that such outfits should be able to provide you the right options with the right kind of an experience. For that such outfits need to have a regular traffic in order to be commercially viable. Moreover, dealers of existing car brands are also looking at ways to hedge their risks by focusing on other brands.  That appears to be a stronger strategy.

Besides compact SUVs, which are the other segments that will witness unprecedented growth?

MA: If the market moves in the direction that we are expecting, then I think there will be growth across all the segments. But clearly, people movers or compact MPV segments like the Ertiga or lifestyle products like compact SUVs will see increased traction. Luxury cars are also seeing a lot of traction with the rising disposable income of the consumers and positive GDP growth.

With the recent announcement of National Electric Mobility Mission Plan 2020 by the Indian government, do you think electric mobility in this country will get a fillip?

MA: Governments around the world are focusing on electric mobility. I think countries in Asia Pacific like Singapore and China, and also countries like Israel, United States, Japan, etc have some kind of an electric vehicle policy. At this point of time, we have not really seen actions to support the policy directions or the policy vision. As it’s a recently announced electric vehicle policy by the government, it’s too early to comment about it.  The question is that do we really have that infrastructure support and are we shifting the source of pollution from the road to the factories (run on coal).  The hybrid vehicles would definitely be a good alternative at this point of time as it reduces the carbon footprint. But again, the affordability question comes into play.

In the next few years how do you see the Indian automotive market progressing?

MA: India is currently the sixth or the seventh largest market in the world. But you will clearly see a movement up north. The single reason that will drive the growth is that the current penetration levels are pretty low from an international perspective. With the improving GDP and per capita income, we find a clear correlation to increasing penetration of car ownership per 1,000 people (presently 10). So there is a latent demand.

The biggest challenge is that it is not that you can realise the demand by any product that you bring out and hope that you will be successful just because you were doing good (with the same product) in China, Europe, United States or Japan for that matter.  That may not be a recipe for success. That is the biggest challenge. So it calls for resources, logistics, gestation periods, investment, etc. So the business cases for many OEMs have not worked here because they have not garnered adequate volumes. A carmaker clearly needs to understand local market requirements and the finer nuances of the country. An increasing amount of focus is also on regional nuances and building that into your product portfolio, performance and quality requirements. A customer is also looking at a network which is responsive and is in tune with global standards.