Red Hot XIMB Peppers-XIMB-Aftermarket

Chandan Dikshit u111016 [email protected] PGDM-II

Christopher Jegam u111132 [email protected] PGDM-II

Debashish Mohanty u111018 [email protected] PGDM-II

Sushmita Sahoo u111100 [email protected] PGDM-II

Team: Red Hot XIMB Peppers

The War Room 2012Aftermarket Sector

Academic Year: 2nd

Indian Automotive Industry

Rural Activation strategy

Car Updating and Tracking System

e-Auction strategy

Unorganized segment Activation

E-commerce scenario

The Aftermarket Sector

Agenda

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Year

Passenger vehicles sales

(in units)

Total automobile

sales (in units)

% Growth in passenger vehicle

sales

% Growth in Total

automobile sales

2006 1143076 8906428

2007 1379979 10123988 21% 14%

2008 1549882 9654435 12% -5%

2009 1552703 9724243 0.18% 1%

2010 1951333 12295397 26% 26%

2011 2501542 15481381 28% 26%

2012 2618072 17376624 5% 12%

0 1000000 2000000 3000000

20

20

20

20

20

20

20

Passenger vehicles sales (in units)

2012: The total automotive industry grew 12% y-o-yIndian passenger vehicle sales grew by 5% y-o-y

Industry Projections: Passenger vehicle market growth for FY2012-2013: 8-10% y-o-y Government Automotive Mission Plan 2016- Automotive industry to be $145 Billion(INR 797500 Crores) by 2016 Growth potential in new car market implies a huge market opportunity for used car market

45%

15%

14%

7%

4%15%

Domestic Passenger vehicle market share

Maruti Suzuki

Hyundai Motors

Tata Motors

M&M

General Motors

Others

Indian Passenger vehicle industry: An ICRA perspectiveSource: Society of Indian Automobile Manufacturers

Indian Automotive

Sector

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-market

Indian Automotive Industry

13%

27%60%

Share of used car market

Organised Unorganised C2CThe Indian automotive aftermarket is currently estimatedat Rs 33,000 crores

Estimated to reach Rs 44,000 crores by 2015

Ratio of used car to new car market is approximately 1.2:1

Growth rate of organized used car market projected to be18-20% y-o-y

High correlation of used car market with new car marketand economy (increasing per capita income)

Shift towards e-commerce/e-auction and mobilecommerce

Synergy between unorganized and organized players

Huge demand for vehicle maintenance

Expansion of service networks by vehicle

manufacturer

Fuel stations adding to the servicing and aftermarket

network

Increased customer awareness of vehicle

maintenance

OEMs opening up their pre-owned car business-

Maruti TrueValue, Honda Auto Terrace, Ford

Assured, Toyota U Trust, Hyundai Advantage

Current Scenario of Indian Aftermarket

Source: CII-Auto Serve 2012

Emerging trends

Indian Automotive

Industry

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-market

Low fixed costLow switching costLess regulatory requirementsHigh growth opportunities (market not saturated)

Aftermarket Industry Drivers: Porters Five Forces

Entry Barriers

Low priced new cars( Tata Nano, Maruti Alto 800, Reva, etc)Limited features in low priced new cars alternatives

Threat of Substitutes

Low switching costEasy liquidation of assetsLow investment requiredLess regulations

Exit Barriers

High negotiation in selling spaceMore selling alternatives-customer to customer, unorganized segment

Supplier Power

Price sensitive buyersHigh negotiation in customer to customer spaceHigh confidence in unorganized transactionsAvailability of more purchase alternatives

Buyer Power

Indian Automotive

Industry

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-market

Assessment of Competitor Segments

Certification (Quality checks) and warranty provision Brand value as a trust enabler Easy financing options Servicing option by skilled technicians

Strengths Weaknesses

Low market share (13%) Customer perception-inconvenience, expensive Low/ No bargaining power

Organized players

Unorganized players

Flexible terms of sale Low facility and overhead costs Customers have high negotiating power, Market share is high (27%)

Cars not certified Unavailable of warranty options Relatively lesser trust

C2C segmentRelatively higher reliability High negotiation power of customers High trust

Cars not certified Limited access to wide pool of buyers- low probability of best price quotes Unavailability of warranty options

Indian Automotive

Industry

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-market

India-the third largest internet market

Total number of internet users in 2012

approx. 132.25 million, growing at a CAGR

of 15%

More than 3/4th of online population is in

the age group of 15-34 years

Online population getting younger in India

Google, Facebook, Yahoo among the most

visited sites

E-tail market to reach USD 12 billion by2016from current USD 590 millionTotal internet user base to increase to almost336 million by 2016Daily time spent online to quadruple fromcurrent 42 million hours by 2016Online advertising to surge to USD 800 million by2016, thus increasing from 3.6% to 8.5%.175 million targeted broadband connections by2017 as announced in National Agenda forInformation & Communications Technology andElectronics

Low Penetration of Advanced PC devices in rural areasLow Penetration of Mobile Devices in rural AreasLow Awareness and Lack of InterestSecurity and Privacy Concern

Source: India Internet-sector report (Dec 2011)- Edelweiss

Indian Automotive

Industry

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-Market

India: e-commerce potential

2001(in crores)

2011(in crores)

Difference(in crores)

India 102.9 121.0 18.1

Rural 74.3 83.3 9.0

Urban 28.6 37.7 9.1

Level of urbanization increased from 27.81% in 2001 to 31.16% in2011 The proportion of rural population declined from 72.19% in 2001 to68.84% in 2011Source: censusindia.gov.in

31%

64%

5%

Population breakup by age-group

0-14 yrs 15-64 yrs 65+ yrs

Urban-Rural Population divide

Used car market is approximately 2.5 million units per annum, expected to grow at 15% CAGRthis yearEstimated urban population in the age group of 15-64 years : 23,97,72,000Estimated 61 million unique Internet users in India in June 2012Online presence of 15-64 yrs age group :97%, i.e., 59.17 million active internet users

Indian Automotive

Industry

Aftermarket Sector

Porters Five Forces

Competitor segments

The E-Market

RURAL AND UNORGANIZED ACTIVATION STRATEGY

Aim

Current Scenario

Scope

Benefits

There is less awareness ofmajor 2nd hand car players inrural India and a goodexposure to Mahindra brandin general.

MFC-Increase awareness to facilitate showrooms by 2015.

Dealer Increased sales, localized promotions, easier procurement

To create brand awareness in rural parts of every state and bring customers into the MFC brand in the long run.

Competitive Advantage + Companys GoalAim

Current Scenario

Scope

Benefits

Rural Activation model

Catchment Areas-Orissa

Rural Activation Cost

Unorganized segment activation

Unorganized Activation Cost

Rural activation

Every state is mapped intoclusters with the confidence ofMFC Dealers

Each cluster is divided in away that it will be serviced byone and only one MFC dealer

By this, the basic plan isrolled out to the dealers acrossa zone/state (The activationmodel maps Orissa intocatchment areas- radius fromdealer location is a maximumof 60kms)

Catchment Area mapping1

Every dealer provides whichall towns he wants to doactivation

Days required in each area ismentioned by Dealer

Appropriate/Sampledates/days during the quartermust be provided by thedealer to MFC as well

Requirement Analysis2

Logistics Finalizing3

Mahindra at the central level(zonal proposed) makes aschedule plan and provides toits dealers

This is done about a monthprior to the actual start of theprogram

The dealers plan theircatchment area marketing forthe dates that have beenfinalized as per schedule






At the specified date for every dealer, the cargo arrives at the outlet.

The dealer uses the cargo to load his vehicles in it and makes count and value of the same.

In the meanwhile the dealer will finalize logistics and prior promotions for whichever catchment area he is to visit

At Dealer -Outbound4

The cargo with vehicles reaches the town which was in the schedule for the dealer

A mela/fair is setup and the cars are placed in that location.

All promotion elements like banners, pamphlets are used.

A small vehicle will go around the town to announce information about the mela/fair

Mahindra Express5

At Dealer -Inbound6

Towns are visited one by one till every dealers schedule is completed

The cargo then returns back to the dealers outlet from where it started

The remaining cars are left at the dealer outlet and the cargo proceeds to the next dealer as per itinerary






Districts Population

Khurdha 2246341

Cuttack 2618708

Jagatsinghpur 1136604

Kendrapara 1439891

Jajapur 1826275

Jatni (32kms)Khurdha(26kms)Begunia(60 kms)

Choudwar(15kms) Athagarh(45kms)Salepur(28kms)

Dharmasala(56kms)Badachana(42kms)Dasrathpur(18kms)

Raghunathpur(28kms)Naugaon(21kms)

Tirtol(24kms)

Pattamundai(28kms)Marshaghai(60kms)

Garadpur(42kms)

Jajapur catchment

Cuttack catchment

Kendraparacatchment

Khurdacatchment

Jagatsinghpurcatchment

Orissa Catchment Areas


Catchment Areas- Orissa









Rural Activation costs

Inputs

Diesel price (in Rs) 50

No of dealers in activation 5

Average Days 4

Mileage(in Km) 2Population 2572418

Average No of sales 1 in 2 days

Percentage Target Population 0.5%Fixed Cost(All figures in INR)

Cargo 150000

Audio Visual 5000Driver salary 30000

Miscellaneous 10000Variable Cost(All figures in INR)

Promoters 50000Area Cost 10000

Promotions & Ads 9200Freebies 10000

Electricity 500

kms per dealer 250

Final Cost(All figures in INR)

Fixed Cost

Cargo 150000

Audio Visual 5000

Driver salary 30000

Other Costs 10000

Variable Cost(All figures in INR)

Promoters 50000

Total Area cost 200000

Promotions & Ads 46000

Total Stocks 50000

Electricity 10000

Diesel Cost 31250

Total Cost 582250

Average Profit 10000

Profit from Sales 100000

Net Cost 482250

Cost per Contact 37.49

Several unorganized players in the market major chunk includes Mechanics. The major problem- Inventory of the vehicle for a long time. Motive of the event- Make them Mahindra Workforce indirectly.

Good connections with their customers and judgmental parameters too Willing to avoid inventory cost to go up by keeping the car. Need recognition and our willing to associate with a brand like Mahindra

The Need

EVENT CALLING

This would be done so that people get

to know about such an event to happen

by MFC

ELEMENTS DESIGN

The various elements to be

executed during the event will be

decided in this phase. This can vary

between dealers.

EVENT

The event will happen in which the

mechanics invited are led through a

workshop

BRAND ASSOCIATION

The mechanics and unorganized players

are explained the advantage of being associated with a

brand like Mahindra

EVENT TAKEAWAYS

Good relationships are established and

the slabs of associating with

Mahindra is given to the second hand

players.

Can we make them to vouch to people and bring them to Mahindra First Choice ?

The Execution







All figures are in INR

INPUTS

No. of Dealers in activation

100

FIXED COST

Training Cost 10000

Miscellaneous Cost 5000

Overall Elements 25000

VARIABLE COST

Refreshments per dealer

50

Training Materials per dealer

25

Freebies 200

FINAL COSTS

FIXED COST

Training Cost 10000

Miscellaneous 5000

Overall Elements 25000

VARIABLE COST

Total Refreshments cost

5000

Training Material costs

5000

Total Freebies cost 2500

TOTAL COSTS 52500

Cost per Contact 525

Number of unorganized dealers/mechanicsaround a dealer have been taken on anaverage as 100 Training will include latest car functionalitiesand ways to market and buy cars frompotential customers as well Miscellaneous cost includes OperationalExpenses and other factors like variability inlocation Training Material shall include banners,posters, etc

Assumptions

Unorganized dealer activation costs (For one town)





UnorganizedActivation Cost

Rural activation-Future procurement of cars by MFC

Brokers, garage dealers, fleet owners to be brought under MFC umbrella

Aim: To implement a proper system to update procured and sold car details on website


(CUTS)

Car Updating and

Tracking System(CUTS)

Car procured at dealer

Car details retrieved by barcode

Details stored in database

Automatic updating of car details in

website

Customer checks website for car availability

Customer visits MFCW dealer to enquire and test ride the car

Customer satisfied; sale is made

Car details removed from

website

Customer preferences

stored in system

Car available at selected Dealer;

customer preference matches as per

records

Customer is alerted via

email and SMS automatically

Customer receives alert via email and

SMS

Customer selectsDealers where hewishes to receivealerts from regd.car availability

CUTS Process Flow Implementation Plan Value Proposition Costs and challenges

J F M A M J J A S O N D

Mumbai Pune + HyderabadGurgaon, Bangalore , Chennai

and New Delhi

Implementation in selected cities in India in a phased mannerPilot launch in Mumbai in January 2013, next in Pune and Hyderabad in April 2013 followedby Gurgaon, Bangalore , Chennai and New Delhi in October 2013

Proposed Timeline of CUTS implementation

Installation of hardware and upgrade of existing software

Train employee at each dealer for data collection and upkeep

Data collection of each car and update in website

Feedback from customers and dealers six months after launch

Roll out across selected cities

Implementation Methodology


Registered users can choose to be notified from select dealers regarding car availabilityTips on car maintenance, traffic rules & passenger safety Car valuation tool in addition to Lifestyle recommendation present in MFCW website Online contests inviting people to post videos of memorable moments with their cars Rewards like free oil change for winners of online contests

Cu

sto

me

r Wide choice of used cars certified by Mahindra

Can update preferences to match requirements

Can choose to be notified from selected dealers

Mah

ind

ra Access to larger customer pool

Prevent lost sales

Effective Customer Relationship Management practices

De

ale

r Access to large number of potential customers

Opportunity to improve revenue and profitability

Faster turnaround of used cars

Uniform design across centers Optimizing use of technology Education and training of personnel Test system and software to be deployed One technical person stationed at every dealer

New features proposed in the website


Administrator can play multiple roles

Training can be imparted to one

employee per dealer

Periodic checking by MFCW personnel

Dealer Satisfaction Survey

Registered user satisfaction survey

Increase in number of registered users in website

Lack of initiative from dealers

Resistance of dealers to shift to new

system

Smooth transition to the new system

Skilling dealer employees in new

technologies

1 Bar code reader & software at each dealer costs Rs 25,000

Training of 1 employee per dealer

Costs Challenges

OvercomingChallenges

Critical Success Factors


Tapping the untapped!!

Customer to customer space

e-Auction Strategy

Current Model ofFeatures Challenges

C2C e-auction to be started at the suggested 6 locations (Phase I)(to tap 60% market) Phase II- expansion to other Tier- I citieseDiig presence at MFCW stores-minimal facility costeDiig to provide consultancy services to customersMarketing and Advertising spends targeted towards the targeted locations

Eyeing the C2C segment

Market leader in e-auction (B2B)- 35% market shareMajor clients- Kotak Mahindra Bank, Mahindra finance, Bajaj finance, ORIX ,etcFacilitates sale of vehicles and not a party to the transaction in any respectOne time buyer registration fees of Rs. 5000+ service tax applicableServer space outsourced to third party hosting companyeDiig is not responsible for any disruptions during auction process(failure of power, Network, server, internet connectivity, etc.)

Limited C2C involvement Low trust among retail customers on the credibility of buying over internetNeed of additional features(to attract C2C space)Registration fees not competitive for retail buyers/sellers

E-auction scenario

Proposed locations

C2C Model FinancialsMarketing & Advertising

Population: 15,14,085PCI: Rs 1,03,235/-MFCW outlets: 3

Population: 1,24,78,447State PCI: Rs 99990/-

MFCW outlets: 10

Population: 94,26,959 State PCI: Rs 99990/-

MFCW outlets: 6

Population: 95,88,910PCI: Rs 69,190/-MFCW outlets: 2

Population: 40,10,238PCI: Rs 72,380/-MFCW outlets: 5

Population: 1,67,53,235State PCI: Rs 1,75,010/-

MFCW outlets: 10

Locations to be targeted for Vision-2015

Gurgaon

Pune Bangalore

Hyderabad

Mumbai

New Delhi

Source: censusindia.gov.in

E-auction scenario

Proposed locations


PCI: Per Capita Income High internet penetration across all locations

Gets the car graded(A+,A,etc) by MFCW quality checksWarranty and service facility dependent on car gradeRegisters as user with a fees of Rs. 300Uploads specifications of car and minimum bid price

Seller

Registers as user with a fees of Rs.300Uploads specifications of required carDoes background check of the car he/she is interested in bidding

Buyer

In-auction Negotiation

Auction window is announced and registered buyers are notified

Buyers bid above the minimum bid price

Highest bidder is declared as winner

Pre-auction Preparation

Post-auction settlement

Shipment and payment terms negotiated between buyer and seller

Option of internet payment through payment gateway to be made available to buyersTo secure payment/delivery, auction is closed when seller ships/ buyer pays

MFCW warranty of the car and services facility made available to buyer

C2C e-auction Model

E-auction scenario

Proposed locations


Access to a large network of buyers

Seller can retain the car put for auction tillit is actually sold

Seller has more choice and highernegotiation power in case of online selling

Transparency in selling process

Access to a wide pool of pre-owned cars atcompetitive prices(since facility cost is low)

Risk of unreliable products eliminated due toMFCW certification

Improved customer experience due toavailability of variety of businessfeatures(alerts, newsletters, search by pricerange, engine capacity, brand, etc)

Grade MatrixGrade Quality

check points

Warranty FreeServicevouchers

A 118 1 year 2

B 100 10 months 1

C 80 6 months nil

Quality Check points are divided according to thewarranty (the numbers are just indicative) The higher the quality check points the seller wantsto be carried out - the more is the warranty and freeservices offered A higher grade makes the car lucrative and henceenables the seller to sell at a good price

Why Grade Matrix??

Value proposition-Sellers Value proposition-Buyers

E-auction scenario

Proposed locations


Risk Description Probability Impact Mitigation

Internet connectivity failure due to power outage

Medium High Recommend buyers and sellers to prefer USB based internet connection for auctions

Network Security Low Medium Install network security softwares

Fraudsa) Non delivery by sellerb) Non payment by buyer

Medium High Perform Know Your Customer(KYC) process to check credibility (address, identity, work history) Route money from buyers to sellers through MFCW-eDiigPayment to seller to be made only upon shipment to/receipt by buyer.

Car damage post certification(since the seller retains the car till auctioned)

Low Medium Perform overall quality check upon request by buyers (within a specified time frame post receipt)

Risks and Mitigation

E-auction scenario

Proposed locations


C2C model-financials

E-auction scenario

Proposed locations


Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7

Revenue Rs. 10,559,969 Rs. 11,193,567 Rs. 11,865,181 Rs. 12,577,092 Rs. 13,331,717 Rs. 14,131,620 Rs. 14,979,518

COGS 7950000 8386500 8839530 9317490.6 9821783.052 10353889.21 10915376.29

Gross Profit Rs. 2,609,969 Rs. 2,807,067 Rs. 3,025,651 Rs. 3,259,601 Rs. 3,509,934 Rs. 3,777,731 Rs. 4,064,141

Fixed Costs 2688000 2841460 3003802.6 3175544.506 3357232.614 3549445.78 3752796.697

Depreciation 0 0 0 0 0 0 0

EBIT Rs. -78,031 Rs. -34,393 Rs. 21,848 Rs. 84,057 Rs. 152,702 Rs. 228,285 Rs. 311,345

Interest 0 0 0 0 0 0 0

EBT Rs. -78,031 Rs. -34,393 Rs. 21,848 Rs. 84,057 Rs. 152,702 Rs. 228,285 Rs. 311,345

Tax at 30% 0 0 0 Rs. 25,217.01 Rs. 45,810.49 Rs. 68,485.60 Rs. 93,403.37

Net Income Rs. -78,031 Rs. -34,393 Rs. 21,848 Rs. 58,840 Rs. 106,891 Rs. 159,800 Rs. 217,941

OCF Rs. -78,031 Rs. -34,393 Rs. 21,848 Rs. 58,840 Rs. 106,891 Rs. 159,800 Rs. 217,941

year 1 2 3 4 5 6 7

PVOCF -71261.37534 -28684.20455 16640.86998 40927.36955 67900.21211 92702.48161 115462.3792

Break Evenpoint 2-3 years

Discount rate 9.50%

Promote eDiig and MFCW under one UmbrellaAchieve Top of Mind Awareness Brand value proposition- Trust, Transparency and Convenience

Target marketMiddle and Upper Middle classAspirational drivers, Well travelledTransitioning from 2-wheelers to 4-wheelersAge- 20-50 yearsSegmentationMetropolitan cities followed by Urban and semi-urban

Campaignsroadshows at IT parks, offices, shopping malls, activity centers

Provide MFC services at parking lots of shopping malls, corporate hubs-improved brand awarenessUsed car melas

Partnership with regional channels for airing 30 sec adsBook prime time slotsCluster ads around peak seasons Ad concepts to focus on trust, reliability, conveniencee.g: A eDiig representative can be portrayed and trust factorcan be shown by the person making the deal between twopeople.

Events TV ads

E-auction scenario

Proposed locations


Create network effect- build a strong fan base on Facebook, twitterCrowdsource to boost engagement level

e.g: Find-it Campaign-help someone find a car and get reward points

Discount code for registration on eDiigFacebook Ads with MFCW website as landing pageRegular contests to increase reachPromoted account on twitter and frequent tweets

Billboards in high footfall areas (Stadiums, Railway stations, Office Complexes, Busy intersections)

eDiig- Your own personal marketplaceMetro Ads in metro stations, suburban trains ,city buses near seats, window panesAds in newspaper dailies (Delhi- mid day, Bangalore-Deccan Herald, Mumbai- Maharashtra times, Pune-Sakal, Hyderabad-Deccan Chronicle, etc.)

Print ads

Social Media

Search Engine MarketingPromote MFCW and MFCW-eDiig website by placing ads with SEM vendors like Google Adwords, Yahoo! Search Marketing Use Search Engine Optimization and web analytics to optimize the websites for increased visibility in search engine results page(SERPs) Use web banners to direct traffic to website (through Pay Per Click(PPC) model) by partnering with publishing websites like autocarindia.com, yellow pages(sulekha.com),makemytrip.com,timesofindia.comE-mail MarketingNewsletters and notifications of auctions to be sent to existing customers-positive word of mouth enablerMobile MarketingMobile ads and banners in frequently accessed websites e.g, weather channels, Google maps, CNN news, etc

Digital Marketing

E-auction scenario

Proposed locations


Creating the Ecosystem ofunorganized used car dealersFuture Sourcing of carsBrand awarenessSynergyCompetitive Advantage

Rural Activation

Unorganized Dealer Activation


C2C e-auction model on eDiig

Convenient Tracking through enhanced websiteReduction in lost salesAlerts on car availabilityImproved customer experience

Wide reach to the untapped C2C spaceTransparent dealingsReliabilityConvenience

Tapping the Unorganized and C2C used car segment +

Increased activity level in the e-world

Summary

Documents

Red Hot XIMB Peppers-XIMB-Aftermarket