CIELO: A CAR IN TROUBLE

ENTRY OF DAEWOO

Heralded as a milestone for the Indian industry.

First multinational to challenge the market leader, MUL.

It launched the first vehicle- Cielo in 3 versions.• Cielo• Cielo GLX• Cielo GLE

Bookings for the three car models reached 1,14000 shortly.

Daewoo had plans to become a $100 billion company by 1998-99.

It was all set to give MUL tough competition.

MAJOR SHOCKS…….. About 70,000 customers cancelled bookings within few months.

Annual Turnover prediction could not be realized.• Turnover Prediction- 10 billion with sales of 20,000 cars• Realized turnover- 6.05 billion with sales of 9044 cars.

During April- December 1996, sold 13,776 cars instead of targeted 52,000.

Decline in car sales continued till 1998-99 , from 41% to nearly 50%.

Recorded losses of 351.4 million in 6 months with a rapid sales decline.

Realization – It’s globally tried and tested formula of providing excellent services with low prices failed in India.

REASONS FOR DAEWOO’S DOWNFALL

Competition from General Motors and Ford.

General downturn in mid size car segment.

Daewoo's targets were termed as – too ambitious and unrealistic.

Media reports held Daewoo itself responsible for the mess.

BACKGROUND• IT WAS A PART OF US$ 65 BILLION DAEWOO GROUP, FOUNDED IN 1967 IN KOREA.

•IN 2001,IT HAD ITS OPERATIONS IN 123 COUNTRIES.

•PRIMARILY,IT DEALT IN EXPORTING READY MADE GARMENTS TO THE US RETAILERS BUT LATER IT, DIVERSIFIED INTO GENERAL TRADING,CONTRUCTION,AUTOMOTIVE,ETC.

•DAEWOO MOTORS ENTERED INTO A JOINT VENTURE WITH US AUTO MAJOR GENERAL MOTORS.

•SPREAD IT OPERATIONS TO COUNTRIES BEYOND EUROPE & US FURTHER TO ASIA,LATIN AMERICA,EASTERN EUROPE

•FURTHER ,INCREASING STAKE UPTO 92% IN DCM LTD.

•FACED TOUGH COMPETITTION IN EUROPEAN & US MARKET.

•RENAMED DCM-TOYOTA AS DAEWOO MOTORS INDIA LTD

•DAEWOO’S EXPANSION TO DIFFERENT FOREIGN MARKETS WAS FUNDED ON BORROWED MONEY WHICH LATER ON RESULTED IN NON CLEARANCE OF REPAYMENT OF ITS DEBTS.

•IN 2000,REFUSAL BY ITS CO.LABOUR UNION REGARDING ACCEPTANCE OF RESTRUCTURING PLAN OF THE COMPANY.

CONTINUED…..

MISTAKES Lack of focused approach and inconsistent policies.

Daewoo launched car in Indian markets in a hurried manner .

Thus, it entered with high import content , not being able to lower prices than its competitors.

With substantial increase in its operations, there were complaints of poor fuel efficiency.

Improper understanding and survey of Indian markets.

No effective response to customer complaints,

Sales staff lacked training to counter customer grievances.

Daewoo was lured by “ Indian middle class market boom” but ,it never took off in reality.

It banked heavily on demand from taxi/hotel car fleet and corporate segments.

Moreover, individuals postponed their needs due to a liquidity crunch in economy.

PROMOTIONAL CAMPAIGN

• In 1995- Daewoo launched- ‘ Diwali Bonanza Scheme’ for corporates to improve car sales.

• Offered 1 free Cielo on purchase of 10 cars.

• It was followed with a lottery scheme for individuals.

• Promotional scheme pushed by Korean Marketing head .

• People due to such schemes began to look at the car with suspicion.

OTHER MISTAKES

• THUS,DIWALI BONANZA SCHEME FOR CORPORATES, OFFERING FREE CIELO CARS ON PURCHASE OF EVERY 10 CARS--RESULTED IN DAMAGING THE BRAND EQUITY AND ITS BRAND CONCIOUS GOODWILL IN THE MARKET.

•DAEWOO OFFERED INCENTIVES TO DEALERS & FINANCIERS FOR REDUCTION OF COST TO CUSTOMERS WAS BEING QUESTIONED BY MONOPOLIES AND RESTRICTIVE TRADE PRACTICES AUTHORITIES.

•TEST DRIVE SCHEMES & LOW FINACE RATES FACED THE SAME BLOW AS FREE SCHEMES EARLIER

•FREQUENT CHANGES IN POSITIONING OF THE BRAND INITIALLY AS “ TECHNOLOGY WITH AESTHETICS” AND LATER ON AS “PREMIUM FAMILY CAR” , CONFUSING THE VIEW POINT OF CUSTOMERS.

•VAL YOU NOTE- HIGHLIGHTING THE FEATURES ALSO FAILED IN ATTRACTING THE CUSTOMERS IN LATER STAGES

•ASSUMPTION OF TARGETING MID SIZE SEGMENTS & MIDDLE CLASS FAMILIES BOOM IN INDIA

BIGGEST BLUNDERS

•DAEWOO’S DECIDED TO INTRODUCE A HEFTY PRICE CUT OFF- 0.15 MILLION IN 1998.

•PROVIDED CUSTOMIZED PACKAGE OF FREE SERVICING AND VALUE BENEFITS POSITIONING ION TERMS OF “VALYOU” AND EARLIER CASE OF FREE CIELO TO CORPORATES LED TO THE DECLINATION OF ITS BRAND VALUE DRASTICALLY

•THE VALYOU POSITIONING GAVE THE COMPANY A RISE IN SALES AT THE INITIAL STAGE BUT LATER ON IN FEB 1998, CIELO- CHEAPEST MID SIZE CAR- WAS ALMOST WIPED OFF FROM THE MARKET

LAUNCH OF MATIZ…….

SHIFTING FOCUS TO MATIZ IN Oct 1998- Daewoo launched its small car-MATIZ .

23,265 units were sold during Apr-Dec 1999.

Demand subsequently, increased by 52.2% and 35,398 units were sold during April-Dec 2000.

Further CIELO took off a back seat after success of Matiz in India.

Daewoo replaced CIELO GLE and GLX with Cielo Executive and NEXIA but customers failed to see any difference.

CONTINUED…..

Advertising of CIELO stopped during pre launch and launch of Nexia.

Matiz had a 70% market share in Korean markets and was operating in 114 countries.

It’s performance in India was not near its global standards. It beared brunt of Daewoo’s poor legacy of Cielo’s

experience. It undertook restructuring programme along with cost

cutting exercise. It’s prospects showed no improvement and it postponed

launch of 3 top end cars.

REASONS BEHIND FAILURE OF DAEWOO'S CIELO

• Did not study the Indian market carefully.• Hurried into launching of Cielo .• High import content used in the manufacturing of the car

made it difficult to keep the cost lower than its competitors.

• Daewoo implemented same strategies as in Korea and US.• Poor marketing strategies were used.• Stiff competition from Ford and General Motors.• Did not modify the plant according to the increasing scale

of operation which lead to quality defects in Cielo like poor fuel efficiency.

WHOSE FAULT WAS IT....?? Daewoo was responsible for its own downfall. Targets set by Daewoo were too ambitious, high and

unrealistic to achieve. Did not surveyed the Indian market thoroughly . Their was lack of focused approach and inconsistent

policies were made. Launched the car in Indian market in a hurried

manner. High import content was used.

In spite of vehement opposition by the Indian managers, there were many decisions and policies made by heads from Korea, due to which the car’s market share had to face great fall.

Some such policies are:

In late 1995, the company devised promotional campaigns-• Diwali Bonanza Scheme.• Lottery Scheme.

In April 1997-• Test-Drive Scheme.•These schemes had been successfully tried out in U.K and Korea earlier, so without considering the market differences the company heads implemented these in the Indian market causing immense damage to the car’s brand equity.

REASONS FOR FAILURE OF DAEWOO’S VENTURE

THE MISTAKES LACK of Focused Approach, Production Capacity,

Inconsistent Policy.

Assumed Demand : Due to “Indian Middle Class Market.”

Daewoo did not study Indian Market Properly. - Source: Media Reports

Finance Rate : 14.33%, Prevailing Rate : 23%

IMPORTANCE OF PRICING

Pricing is in fact a dramatic controller of at least 3 key strategic elements of a company's success:-

: Brand image.

: Which products and services are sold.

: Customer behaviour. Daewoo reduced the prices of Cielo by 1.5 lakh which

sent their pricing strategy hay wire. Although Sales increased by 906 per month as

compared to 314 units per month. This all wiped out the Car’s Credibility.

INITIATIVES TO SALVAGE THE BRAND IMAGE

Launched the ‘Valyou’ campaign on new positioning and highlighting Cielo’s features.

Increased the advertising budget.

RESULT:-

Increase in sales from 906 to 1102 units per month.

All this soon wore-off and the sales again fell drastically from 1102 per month to 148 per month.

THANK YOU !