A Case Study on Tactics for Customer Retention at Hyundai Motor India Ltd

International Journal of Management (IJM) Volume 12, Issue 4, April 2021, pp.150-163, Article ID: IJM_12_04_015 Available online at http://iaeme.com/Home/issue/IJM?Volume=12&Issue=4 ISSN Print: 0976-6502 and ISSN Online: 0976-6510 DOI: 10.34218/IJM.12.4.2021.015

A CASE STUDY ON TACTICS FOR CUSTOMER RETENTION AT HYUNDAI MOTOR INDIA LTD

Dr. Shrikant Ratley Associate Professor, Marwadi University, Gujrat, India

Dr. Ganesh Waghmare Balaji Institute of Management and Human Resource Development, Sri Balaji University, Pune, Maharashtra, India

ABSTRACT This case relates to the Indian subsidiary of South Korean automaker Hyundai Motor Company, Hyundai Motor India Limited (HMIL), and how it faces the customer retention problems. It made their products appealing to Indians of the upper middle class who had little alternative but the blandly built versions offered by market leader Maruti Suzuki. With the launch of models like the Fluidic Verna and the Elantra, HMIL slowly began to emerge as a leader in many high-end automobile segments. In the automotive industry, customer retention is a big problem with the purchasing cycle of consumers ranging from at least 3 to 5 years and the cost of brand switching being negligible. Consequently, the challenge for marketers is to provide the customer with continuous satisfaction by providing a quality product, excellent after-sales service and regular customer engagement to make him more engaged with the company. Key words: Customer Loyalty, Customer Relationship Management, Automobile Industry, Customer Retention, Customer Satisfaction. Cite this Article: Shrikant Ratley and Ganesh Waghmare, A Case Study on Tactics for Customer Retention at Hyundai Motor India Ltd, International Journal of Management (IJM), 12(4), 2021, pp. 150-163. http://iaeme.com/Home/issue/IJM?Volume=12&Issue=4

1. INTRODUCTION 1.1 Automobile Industry in India The automobile sector officially came into exist in 1952, that time Government employed it’s primarily tariff commission in aiming of set of this industry within the country. In 1952 like wise noticed the launching of passenger cars in the India. Companies like Premier Automobiles Standard Motors and Hindustan Motors were first time came in the name &fame.

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In the accordance of industry growing track, SUV’s taking place being factory-made by Mahindra and Mahindra, Bajaj, Standard Motors, etc. Unwieldy and average commercial vehicles remained manufactured by 7 companies hence involving Simpsons and Co., Premier Motors, Ashok Motors, and more. Two-wheeler vehicles like scooters, motor bikes or mopeds remained mass-produced by Escorts Group, Royal Enfield, Bajaj Auto, Vehicles Manufactured goods of India, Ideal Jawa, etc. HMIL entered the Indian market in the 1990s when it launched the Indian automobile market open to foreign players. It quickly grew to become a market leader. HMIL followed a strategy whereby it introduced feature rich and stylishly designed models for a reasonable price in the Indian market. Like some of the new foreign players including Volkswagen, Skoda, Toyota, Honda Siel Cars India Ltd who entered the Indian market and offered their products in the compact automotive segment. The MSIL, HMIL, and Tata Motors had dominated this segment earlier. Therefore, HMIL's retention ratio has dropped and was less than its closest competitor, Maruti Suzuki, and further declined due to intense competition from the global market as well.

Figure 1 (Source: TechSci Research, Annual Report)

Table 1 Domestic Market Share for 2018-19 Passenger Vehicles 13 Commercial Vehicles 4 Three Wheelers 3 Two Wheelers 80 Grand Total 100 • The automotive industry includes the manufacture of commercial vehicles, passenger vehicles and 3 &2-wheelers.

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Figure 2 (Source: Society of Indian Automobile manufacturers (SIAM)) • Two-wheelers are by far the most popular vehicle in India, taking a share of 80 per cent in2018-19. • FY19 produced 26.28 million automobiles.

Figure 3 (Source: Society of Indian Automobile Manufacturers (SIAM), The Economic Times) • In 2017, India became the fourth largest car market with sales (excluding two-wheelers) rising by 9.5 per cent year-on-year to 4.02 million units in 2017. Overall domestic car sales rose to CAGR 6.71 per cent between FY13-19 with 26.27 million vehicles being sold inFY19. • With 30.92 million vehicles produced in the country in FY19, domestic automotive production increased by 6.96 per cent CAGR between FY13-19. • In FY19, commercial vehicles registered the fastest growth in domestic sales at 17.55% year-on-year, led by three-wheelers at 10.27% year-on-year, respectively.

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Figure 4 (Source: Society of Indian Automobile Manufacturers (SIAM)) • The domestic Indian auto market is dominated by two-wheelers and passenger cars. Sales of passenger cars are dominated by cars small and medium in size. • Two-wheelers and passenger cars accounted for 81 per cent and 13 per cent, respectively, of over 2,97 million vehicles sold inFY19. • In FY19, total automotive exports exceeded 4.63 million vehicles, showing a CAGR of 8.11 per cent between FY13 andFY19. • Two-wheelers constituted 70.9% of the vehicles exported, followed by passenger vehicles with 14.6%, three-wheelers with 12.3% and commercial vehicles with2.2%. • In FY19, total exports of automobiles increased by 14.50 per cent year-on-year.

Figure 5 Major Players in Indian Automobile Industry (Source: ET Auto.com (from the Economic Times)

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1.2 Company Hyundai Motor India Ltd is a wholly owned subsidiary of the India headquartered Hyundai Motor Company. It is the second largest producer of automobiles with a market share of 16.2 per cent as of 2018 and a turnover of 5.8 billion USD in India. Hyundai Santro Xing / Atos Prime (Discontinued-2014) was produced exclusively by Hyundai Motor India Limited. On 6 May 1996 Hyundai Motor India Limited was founded by South Korea's Hyundai Motor Company. The brand Hyundai was almost unknown in India when the Hyundai Motor Company entered the Indian Car Market in 1996. There were only five major car manufacturers in India at the time of Hyundai's 1996 entry, i.e. Maruti, Hindustan, Tata, Prime Minister and Mahindra. Daewoo had entered the Indian car market with Cielo just three years ago, while Ford, Opel and Honda had entered the automotive market less than one year ago. Maruti Suzuki had a near-monopoly over the passenger car segment for more than a decade until Hyundai arrived because Tata Motors and Mahindra & Mahindra were exclusively manufacturers of utility and commercial vehicles, while Hindustan and Premier built outdated and uncompetitive products both. HMIL operates two production plants in Irungattukottai, Sriperumbudur, Chennai, Tamil Nadu. HMIL's manufacturing plant near Chennai claims to have the country's most advanced capabilities in production, quality, and testing. In February 2008, HMIL commissioned its second plant, which produces an additional 300,000 units per year, to cater for rising demand, increasing the total production capacity of HMIL to 700,000 units per year. Hyundai Motor India Engineering (HMIE) is a wholly owned subsidiary of Hyundai Motor Company, headquartered in Hyderabad, Telangana, South Korea. HMIL formed HMIE in November 2006 and contributed to the development of popular new models for the Indian market by Hyundai Motors beginning with the Eon and now followed by the I series, and in SUV segments such as the Creta. Many overseas R&D centers of Hyundai Motors are based in the United States, Germany, Japan, Korea and China. Mr. Y K Koo has been MD & CEO of Hyundai Motor India Limited as of November 2015.

1.3 Main Content On May 13, 2011, two days after the successful launch of the new Hyundai Verna, Nalin Kapoor (Kapoor), General Manager (Sales and Marketing) of Hyundai Motor India Ltd. (HMIL), was sipping coffee in his sixth-floor cabin in Jasola, New Delhi, and looking at internal reports from the firm. HMIL had been doing satisfactorily since 1996, when it started operations in India. The Hyundai Santro had been released ambitiously in the year 1998. Since then, after Maruti Suzuki India Ltd (MSIL), HMIL had grown to become the second-largest car manufacturer in India, an emerging market. Kapoor contemplated the growing threat posed by major players such as Volkswagen, Skoda, Toyota, Honda Siel Cars India Ltd that had entered the Indian market and offered their products in the compact car segment. The MSIL, HMIL, and Tata Motors had dominated this market earlier. The internal reports indicated that the customer retention ratio of HMIL was lower than that of its closest MSIL rival, and was further decreasing due to intense competition on the global market.

1.4 Kapoor Pointed Out In the automotive industry, customer retention is a big problem with the purchasing cycle of consumers ranging from at least 3 to 5 years and the cost of brand switching being zero. The challenge for marketers is therefore to give the consumer continuous satisfaction by providing

http://iaeme.com/Home/journal/IJM 154 [email protected] Shrikant Ratley and Ganesh Waghmare a quality product, excellent after-sales service and regular customer contact to make him more involved with the business In the past, HMIL had been running customer retention projects such as providing an exchange incentive and improving products and carrying on other activities related to public relations (PR), but these were of a short term nature. Kapoor was able to realize the need for a long- term, sustainable retention programme.

1.5 He Commented To counter the growing threat from rivals we need to do something that makes our customers come back to us for their next purchase and spread the positive word about us. The marketing strategy department under Kapoor thoroughly delved into formulating strategies for long-term retention. One possible solution, they thought, was to introduce a successful loyalty program like those already popularized in the past by some car companies, some of which were still operational. The marketing strategy team was able to collect useful information and consumer testimonials about the loyalty programs run by other automobile companies with the aid of a management intern who served under Kapoor's guidance. The team began investigating the feasibility of implementing a customer retention program at HMIL in light of this knowledge.

1.6 However, Kapoor Expressed his Concerns Even if such a plan is introduced, will they be able to justify the costs of planning, preparing, implementing and funding a national program of this kind? How will the system layout be such that it effectively propels clients to be loyal to HMIL? If not a loyalty card then what other customer retention methods can be pursued? Despite a productive rate of growth, challenges arose in sustaining this growth as a result of rising interest rates and booming input costs (The Asian Age, 2011). In addition, the need to achieve competitiveness in manufacturing, the implementation of alternative sources of fuel technology, brand building, and customer relationship management (CRM) was necessary in the long run.

1.7 Need for Customer Retention Ernst and Young experts claimed an additional 200 million people would likely be added to the urban population of India by 2020. At the same time, consumer preferences have emerged in terms of heterogeneity of urban demand, ownership costs and willingness to spend on their vehicle's extra features. And as competition among vehicle manufacturers increased, companies needed to adjust and change their strategies to strive for market share growth, sustainable profitability and operational flexibility in order to preserve their competitive position over the long term. Industry critics noted that a car was no longer seen as a simple transportation device in India, but rather as a sort of lifestyle statement. Most customers felt that'' change'' was the motivation to buy a second car that was a higher end car in almost all of the cases. Hence, it became imperative for car manufacturers to maintain their already existing customers in terms of improved after-sales service, updating cars, and even purchasing a higher end model. HIML's marketing strategy team decided to review the rivals ' current loyalty programs before making an appeal on their customer retention plans. Kapoor has advised his team to analyze the project report on the three different loyalty programs compiled by the management intern – The Hero Honda GoodLife program, Maruti Suzuki AutoCard and Ford Car Gainz to learn how those loyalty programs did and what the pros and cons of each program is. As the loyalty program scenario in India was still nascent, Kapoor wanted to find out first about the

http://iaeme.com/Home/journal/IJM 155 [email protected] A Case Study on Tactics for Customer Retention at Hyundai Motor India Ltd acceptability of such programs in the automotive sector and how they were structured and promoted to evoke customer loyalty.

1.8 Hero Honda Good life Program Hero Honda launched this loyalty program as the Hero Honda Passport scheme, in 2000. Hero Honda's associate manager (Marketing) Neeraj Tiwari (Tiwari), said: The name'' Passport'' was given to cater for the middle-class inspirational value of having a highly inspiring passport. Ten years back in India, getting a passport has been a very tedious process. The card was designed to be an ATM card, too. This was Indian automotive industry's 1st loyalty program. He added'' The Passport program's primary objective was essentially to create a centralized database to study consumer behavior, and to execute marketing efforts accordingly. The service has gained immense popularity among consumers over time and in 2008 it was restructured as the GoodLife program with more'' customer touch points'. The card came at a price this time whereas; it was given for free earlier. Tiwari explained the reason behind the fees charged: If you charge customers for something then the use of the commodity paid increases, The customer never used the card given free of charge which was one of the Passport program's main constraints. We wanted to bring the customers and use the card whenever they come to the Hero Honda dealer. By 2011, the GoodLife program had more than 8,200,000 participants enrolled which clearly indicated its success.

1.9 Maruti Suzuki AutoCard In 2006, in collaboration with Citibank and Indian Oil Corporation Ltd (IOCL), MSIL launched a unique3-in-1 AutoCard which executed the functions of a Petro Card, International Credit Card, and Loyalty Card. According to Amit Kaushik (Kaushik), Assistant Manager (Loyalty Program) MSIL,'' This program was aimed at selling more cars through the loyalty program and keeping customers in the MSIL network’’.

1.10 Kaushik Added The system in the four-wheeler automotive category, which seemed like a revolutionary marketing effort, failed to live up to expectations and was discontinued in 2009. Together with Citibank, the system failed due to banking issues such as lack of consumer trust on Citibank and a general negative view of Citibank credit cards. There have been several concerns from consumers about fraudulent credit card practices and bank billing the customers for not making purchases. Already consumers were thinking about switching due to the inefficiencies that they find in this system. The negative word of mouth was going around and MSIL scrapped the program in 2009, completely revamped it, and introduced it again a year later, before things got out of hand. Two types of cards appeared this time: the MSIL AutoCard and the SBI Maruti Card.

1.11 Kaushik Pointed Out And those who were reluctant to opt for a credit card could also be included in the MSIL network and all MSIL customers will reap the benefits of the loyalty programme. This time, SBI chose the bank for a credit card, because customers associate the same confidence and interest with the brand as they associate with Maruti. The software became very popular with a 100 per cent conversion ratio in Mumbai, New Delhi, and Kolkata in the metro cities. It was also gathering momentum in tier two cities, but enrolments in rural areas were sluggish.

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1.12 Ford Car Gainz Program This program began in July 2004 as Indian market's first loyalty program for four wheelers.

1.13 An Official at Ford Stated The system failed to create the desired impact and success because at that time it was appealing to a customer base of only 80,000. Moreover, Ford's product line was not comprehensive at that point and Ford's servicing was costly, and very few Ford service centers were in place to prepare for such a system. The amenities and benefits system were not sufficient to provide consumers with an incentive scheme to move to Ford or even stay ' loyal ' to Ford which was the core goal of the Car Gainz plan.

1.14 The Problem In 2011, the launch of the new Hyundai Verna started at HMIL. The business used social media, but most of the CRM tactics it adopted were short-term in nature like the update incentive and trade bids. For its i20 customers–ubertrooper.com –the company also had a dedicated web platform where members could share their experiences and images with the vehicle. There were regular events and competitions held for customers during the 2011 ICC Cricket World Cup like a slogan writing competition. Kapoor noted that companies such as Ford and Volkswagen, including MSIL, HMIL and Tata Motors, were taking away market share from traditional Indian leaders. This intensifying competition strengthened his conviction that a long-term customer retention plan was necessary to tie customers up to their next purchase for at least three to five years. Ensuring continuous satisfaction to the customer during this time was also essential. Also important was maintaining consistent customer satisfaction during this period. On the other hand, the financial implications of having a loyalty program introduced were significant. The cost of setting up the whole programme, preparation, and promotion had to be measured in terms of hard to measure returns. In fact, a failed loyalty program would undermine the brand's reputation of HMIL. The evidence provided by the report of the management intern about the successful loyalty programs presented the management team with conflicting findings. On the one hand, there was an absolute victory (Hero Honda) and on the other, there was a disastrous failure (Ford) although some programs later became a success (MSIL). Kapoor was caught in a dilemma about getting the loyalty card released. In response to the insights the management team has provided after reviewing the study.

1.15 Kapoor Expressed His Concerns If we launch a loyalty card like those that other players have already tested, how should it be structured and promoted then? Can this clear the noise in the highly competitive automotive sector? If we don't launch it then can we use other retention strategies to keep the customers interested, particularly in the booming social media field? A retained customer reduces the cost of the purchase but an unhappy customer will never return to you due to a failed loyalty program.

2. ANALYSIS 2.1 STP of HMIL Segment: - Full segment of the automotive industry including hatchbacks, sedans & SUVs. Target Group: - Young managers from the upper middle-income bracket. Positioning: - Hyundai offers luxury cars that are a globally recognized and welcomed brand at affordable prices.

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3. HYUNDAI SWOT ANALYSIS 3.1 Strengths • The company employs about 100,000 people worldwide. • Hyundai automobiles are sold worldwide through some 6,000 dealerships and showrooms in 190 +countries. • Hyundai sells over 1.5 million vehicles per year • In having celebrity brand ambassadors, it has outstanding branding and advertising. • The company has an outstanding range of products from the hatchbacks, sedans and SUVs. • Hyundai has a strong presence in motorsport and participated strongly in sponsorships. • The company's ranges of electric and hybrid cars have strengthened its brand image.

3.2 Weaknesses • Hyundai faces intense competition which means a limited growth in market share. • Controversies about diesel engines, the company has been affected by the wrong publicity. 3.3 Opportunities • Developing cost-friendly Hyundai Hybrid Cars and Future fuel-efficient cars. • Tapping the global emerging markets will help Hyundai create a global brand. • Fast-growing market for vehicles.

3.4 Threats • Government policies around the world for the car market. • Much higher fuel costs. • Intense competition from global automotive brands will reduce Hyundai's market share. • Hyundai's company can be impacted by alternative public transport systems such as buses, subway trains etc.

3.5 CSAT Score Honda and Maruti Suzuki, each with a score of 901, rank highest in satisfaction, in a tie, with after-sales customer service among the mass market brands. Maruti Suzuki is doing well across all factors and Honda shows strong progress across all factors, with the biggest changes in service initiation and quality of service. At 888, Hyundai and Tata ranked third in a tie, and are the study's most improved nameplate.

4. PORTERS FIVE FORCE MODEL 4.1 Industry Rivalry Hyundai faces tremendous rivalry, as there is a lot of competition for costs. To do this, the organization must concentrate on the strategy of product differentiation and put more resources into its marketing activities. Hyundai's major competitors in the Indian market are Maruti Suzuki, Tata Motors, Honda, Mahindra and Mahindra, Toyota, Ford, and so on.

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Figure 6

4.2 Bargaining Power of Buyers In an automotive industry, consumers have more bargaining power. They'd choose complementary products. The details about the commodity is taken prior to purchase. The competitive market offers more choices for consumers in terms of prices and requirements. Hyundai needs to take into account all aspects including design, features, price, pricing, branding and after-sales services.

4.3 Bargaining Power of Suppliers Providers do not have a better bargaining power. Suppliers for the automotive industry compete in terms of cost. Many firms supply a few parts, but bargaining is less so since the customer can easily move to the other supplier.

4.4 Threat of Substitute The downside of choosing a replacement product is only when the price of the product is raised, or the substitute product provides the product at a lower price. The business could be facing the threat from various public transport means. Hyundai, however, faces a low risk of selecting a replacement product because consumers prefer to have their own cars for ease.

4.5 Threat of New Entrant It is not easy to enter the market in the automotive industry, as brand loyalty is needed in order to generate first. Resource expenditures are very small. An industry such as Hyundai needs a strong supply chain from carriage to product delivery. It is necessary to meet the safety standards for this innovative technology. Hyundai also needs to focus on differentiating the product and develop a unique design to create a brand image.

5. MATURITY MODEL CRM ANALYSIS The CRM activities are assessed in conjunction with The Gartner CRM Maturity Model which has five rising maturity levels. Level 1: Conscious Level 2: Build Level 3: Realistic Level 4: Optimization Level 5: Leading. The appraisal aspect is Vision, Policy, Organizational Collaboration with Customer Experience, Processes, Data and Information, Technology and Metrics.

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Table 2 Level 1 Level 2 Level 3 Level 4 Level 5 Aware Developing Practicing Optimizing Leading Vision Ignorance Initial Function/ch Inter- A focus on toward CRM; a productivity annel enterprise entire belief that it is and effectivenes integration customer un-necessary visibility s ecosystem Strategy None Isolated More Cross- Shared projects; "joined up" department objectives initiated thinking, but objectives; and goals from the still silo- enterprise bottom-up oriented CRM Customer Uncontrolled Limited Understandi Common Understandi Experien by either scope; ng and focus experience ng of ce organization or "Whatever within across lines customer customer happens, individual of business across happens" silos (LOBs), ecosystem, regardless and of touch consistency point of response and engagement Organiza Inward focus; First signs Changing Customer Shared tional silo- oriented of customer culture and centric; customer Collabor centricity; incentives; reorganized centricity; ation silo- silo- by segment goal oriented oriented alignment Processes Inward focus; Start Optimizatio Enterprise- True end-to- silo- oriented optimizing n at silo level end process for level for optimization optimization efficiency; cost, for cost and for customer silo- revenue and value; engagement oriented effectivenes processes s cross some silos (such as lead managemen t) Data and Basic; Team- Shared info Shared info Shared info Informati fragmented based; at silo level; and insight and insight on fragmented; insight across the beyond the minimal developing enterprise; organization insight 360- degree view of customers Technolo Fragmented; Fragmented Strong Strong Strong gy weak ; limited functionalit functionalit functionality functionality functionalit y within y with ; integrated y and focus silos enterprise- beyond the level organization integration

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Metrics Few metrics A few more Customer- Enterprise- Shared focused on metrics focused and objectives internal focused on metrics are customer- with processes (such specific being focused; balanced and as cost processes defined balanced aligned reduction in (such as (such as hierarchy metrics. call center, reduction in customer increased sales time on call, value, share and decreased response of wallet campaign cycle rates to and times) campaigns customer and close satisfaction) rates for sales) (Source: Gartner’s maturity model)

5.1 Status & Learning Objective So, the key problem was created as per the HMIL case whether to choose the new loyalty programmed or not to keep existing customers. As the retention ratio of Maruti Suzuki was higher than that of HMIL. As in some cases loyalty programs have done well while struggling in some cases on the other side. Because of the competitive advantage of Maruti Suzuki's domestic presence in an Indian market which results in lower operational and transportation costs, it is not possible for Hyundai to create lower price passenger vehicle than the Maruti Suzuki in the same segment. There was also no issue regarding HMIL's current positioning towards its target audience. Thus, as the case further analyzed, the result was that the current CRM system used in the HMIL is not as effective as its competitors, leading to the further implementation of strategies such as loyalty programs. As workers do not get the right insight into finding the most effective touch points within the segments, While other major players like Toyota, Honda, Tata Motors, Mahindra and Mahindra on the other hand have the upper hand over HMIL when it comes to CRM efficiency. Thus, being put 2nd on the market as per the study, Hyundai motors have lower CSAT score due to less successful insights into target markets and resulting in the dilemma of introducing some strategic loyalty programs and ultimately resulting in lower retention score than market leader Maruti Suzuki.

5.2 Observed issues related to the CRM in HMIL • Documentation proof is scarce for inventions suitable for customer experience. • Lack of CRM upstream and downstream alignment. • Each dealer's CRM department reports to the head office on a regular (monthly, weekly) basis. For the above, they do not have a proper reporting system in their ERP that is being enforced. • Customer data has not been validated at different intervals.

6. CONCLUSION • As per the report, the main problem was the feasibility and effectiveness of the CRM introduced within the company. Therefore, improving the CRM would help employees gain better insights into specific segments. • This will further boost the preparation of strategic loyalty programs.

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• Which will increase customer satisfaction and eventually help maintain the retention ratio • Integration of CRM of Hyundai and its vendors need to be done. • Also, need to integrate the CRM across dealers to obtain an automatic reorder feature to ensure better availability of spare parts and avoid stockouts. • Scope of automation of customer reports need to be designed within the current ERP software. • The CRM department of each dealer shares reports to the head office on a periodic basis (monthly, weekly) • In order to do the above, they do not have a proper reporting system incorporated in their ERP. Therefore, they need to get that implemented which can help them produce automated reports on the move and avoid manually generating their own formats. • Honda has released Honda Connect, a purely Indian market information website. This new app lets clients connect to their own vehicle, family and Honda. • These new features can also be produced by Hyundai from third- party vendors as the negotiating power of such suppliers will be weak in the automotive segment as per the five-force model of the porter. • Also, according to the Hyundai target group, which is young, these new technologies will be easy for them to follow. • In addition, HMIL will introduce digital product customization through the official website for premium buyers. REFERENCES

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