Illuster specialized industry insight
Demonetization in India has been very bad for the Indian automotive industry, in particular for the premium segment of the Indian automotive industry. The other sector that really got hammered by demonetization was the real estate sector. There has been a remarkable resilience demonstrated by the premium automotive segment though, with premium automotive major Mercedes-Benz reporting the sale of more units in December 2016 as opposed to December 2015. Despite the demonstration of such resiliency, the fact remains that the premium segment has fallen into a lull, and sales are definitely below what they should be. Those who would have normally spent on premium segment vehicles are wary. Wary, particularly of the taxman. One can only definitively call off the effects of demonetization on this segment after the tax season, and that is still a while away. However, it is not all doom and gloom for the premium automotive segment, this downturn is veritably, the greatest opportunity to present itself in recent times.
The greatest fortunes in history have been built in the toughest times for an industry. It is times like this, when companies start investing less, as the immediate return on investment is poor. What this leads to is an abdication, a lacuna in the market. The crowd is sitting on the fence, the guy who steps up to take the pitch wins. Even children understand this, they go early and occupy the playing ground when no one else is playing, so they can play longer. In the famous words of Warren Buffett, "be wary when everyone else is greedy, and be greedy when everyone else is vary." If you wondered when this time is applicable for the premium automotive segment. It is now, it is literally staring you in the face. Some players recognize this, and are putting out ads, in the last couple weeks, ads of at least 2 of the 4 premium segment majors were in the most popular daily newspapers. The idea is right, the approach however, is clearly inadequate.
The idea of investing in a downturn is followed by the action of investing more "monetarily" in advertising to gain market share in the downturn. The key aspect that is missed in this is to invest "strategically" to gain market share as well. This will entail doing new things, which may get you disproportionate returns. A famous example of such an investment is one made by the legendary Sam Walton. One day, a manager of a Walmart store had ordered 7 times the amount of pie that was required for a Walmart store by mistake. With all the extra pie they had Walmart conducted a "moon pie" eating competition at the store. The extra pie would have gone to waste anyways, or Walmart would have been forced to sell it at a discount. Rather what Walmart did was turn it into a serious advertising asset. The "moon pie eating" contest attracted a lot of competitors, and consequently serious media attention. This was a major PR coup for Walmart. With what was essentially a sunk cost due to a store manager's mistake, Walmart could grab serious attention and more shoppers.
Such strategic thinking is required to gain market share today. Although the Walmart example illustrates a stellar form of a strategic investment, the environment is different today. We are in a firmly digital age in India, and a strategic investment would most likely take the form of a digital investment. Like Walmart's example, such a strategic investment may not be the greatest one in monetary quantities, but the returns of such strategic investments will be disproportionate to other conventional investments.
Due to this segment being under serious stress, for the first quarter of 2017, we, at Illuster Consultants LLP are putting a special focus on the premium automotive segment. We are helping the sector which is so crucial to India's growth story by giving a free presentation to CXO/MDs of Premium Automotive Majors in India on "The 3 trends that are shaking up the premium automotive segments and how you can emerge stronger in the New Order." To request the presentation
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