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India has a large population (1.2 billion) which is great if you have a product to sell. On the downside, India has a large population. It’s a problem because how do you segment and target a specific audience for your product? Rama Bijapurkar literally wrote the book on understanding the Indian consumer. Her book is titled “We are like that only” and drills down into the behavior of the Indian consumer via the socio-economic classification (SEC) system. The SEC system helps you understand WHO your audience is, where they live and how much they earn.

If you are trying to quickly segment the Indian population that’s where the SEC classification system breaks down. One of the easiest ways to segment the Indian population is via a simple phrase – “mass vs. class.” It simply and effectively segregates the country into two buckets. I’ve always hated the term “mass vs. class” because it somehow seemed derogatory but honestly it quickly sums up India with broad strokes.

I really started to understand the power of “mass vs. class” when I was recently on vacation in Europe.  The tour guide was way more interested in India then him explaining the sights and sounds of the city we were touring. The tour guide was interested in learning how the average Indian lives and what their life might be like. That’s when I realized the easiest way to describe India was via the “mass vs. class” phrase.

So who is mass and who is class? If you look at the transportation market it becomes pretty clear. Can you name the number 1 selling vehicle in India? If your brain is going into over drive and trying to run some crazy algorithms over which Indian made car is number one, you have already lost. The number 1 selling vehicle is not a car but a motorcycle.  Last year, 2.5 million cars were sold in India and I would say 80% of those cars were low end cars like the Maruti Alto and Tata Indica. The number of two-wheelers sold during the same period was 11.2 million units. That gives you a grand total of 13.7 million units sold and only about 500,000 units or 3.6% for cars that cost more than 10 lakhs. 96.4% = mass and 3.6% = class.

If you live in Bombay or Delhi you might be thinking I have no idea what I’m talking about because it appears all the cars on the road are Audi’s, Benz’s and BMW’s. But in reality Bombay and Delhi live in their own little world, cut off from the rest of the real world of India. Think about this stat – Audi sold 5,511 cars last year in India whereas in China it sold over 313,000 units and in the US it sold over 117,000 vehicles.

Another example of “mass vs. class” are travel options – planes, trains and automobiles (also the title of a great movie).  If you’ve been to India then you know automobile travel is not the best choice, so that really leaves planes and trains.  Last year, over 61 million people travelled by planes and the good old Indian Railway system setup by the British? Over 30 million people per day. 99.5% = mass and 0.5% = class. For airline travel we are not even talking about 1% we are talking half of that.

After running these numbers I realized the “mass vs. class” phrase is similar to the stance of the Occupy Wall Street Movement whose slogan is “we are the 99%” which means the remaining 1% are the elite or class. The numbers seem to reflect the same in India.

Links to where I got my stats from: Overall market size, Audi, airline and railway.

Definition of pilgrimage:

a journey or search of moral or spiritual significance.

Stuttgart is ground zero for Porsche. It’s the world headquarters and since 1963 every 911 has been built here. Visiting the Porsche Museum in Stuttgart was akin to a pilgrimage of sorts for me.

Although there have been various Porsche models throughout the years, for me the 911 was the one that got me most excited…almost like a school girl seeing Justin Bieber in concert. It’s had the same basic design since 1963 but keeps getting refined. Currently, the 911 is in it’s 7th generation and known internally as Type 991 and was launched on August 23, 2011.

Having grown up in Southern Indiana I didn’t see a lot of Porsche’s but I remember reading every magazine article I could find about the 911 – Car & Driver, Road & Track and Motor Trend were my friends.

It feels like yesterday when I first saw pictures of the 911 and salivating over it. It was 1988 and I was a freshman in high school thumbing through a car magazine at the school library. Porsche had just announced their next generation 911, the 3rd generation 911 known internally as Type 964. It was just simple and beautiful with clean lines. The car magazines would always compare every new 911 to the American sports cars like Corvette, Camaro, Mustang, etc… However, as Porsche marketing back then suggested and as Tom Cruise famously said in the movie Risky Business – “Porsche, there is no substitute.”

Anyways, back to the pilgrimage. When we visited the Porsche Museum they had a special exhibit called the “Identity 911″ showcasing the 7 generations of the 911 and the origins of the 911. The 911 was designed by Ferdinand Alexander Porsche, instead of blood this guy had engine oil running through his body. His grandfather designed the VW Beetle which is the best selling car of all time. When you stop and think about it, only 2 cars have maintained their same basic shape through the years – the 911 and the Beetle. The 911 is fast approaching it’s 50 birthday next year and yet if you see any of the previous 911′s you know they are part of the 911 family, hence the exhibit name “Identity 911″. The iconic 911 is like fine wine, it just gets better with time.

Download an excellent PDF showing the visual changes of all 7 generations of the 911.

We’ve all heard the saying “the customer is always right”, it stems from the fact that the customer has money and never argue with a potential paying customer. Based on Apple’s latest earnings, I’m starting to rethink that age old quote. Apple announced a record $46.33 billion in revenue, of which 73% came from iPhone’s and iPad’s. The iPhone and iPad were created completely in-house with zero customer interaction or focus groups. One of Steve Jobs quotes about product developement:

It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.

Can’t really argue with Steve. Customers are really good at asking for incremental improvements. At MProfit we field 100′s of request a month and many are useful but most are not. Most are requests for a single feature to help that person but of course that’s not how a customer spins it. They usually tell us “if you add XYZ feature you will get 1000′s of new customers.” However, companies don’t grow exponentially by adding one feature here or another there, it’s about completely flipping the mindset and getting many more new customers in the door.

One of my favorite quotes in regards to product development supposedly came from Henry Ford:

If I’d asked my customers what they wanted, they’d have said a faster horse

The car industry for the past 50 years has been stuck in this add one feature here or increase gas mileage by 5% sort of mentality. Innovation has been slow and hence General Motors, Toyota and Volkswagen each have taken turns for the top spot for most number of cars sold every year for the past 3-4 years. As a consumer, I would ask for a 500hp car that gets 50 miles a gallon, which is what Henry Ford was getting at.

Companies big or small need to think about innovation on a much larger scale and not get trapped in a feature war.  It’s tactical thinking vs strategic thinking, but many people forgo the strategic thinking because it sounds too dreamy/fluffy and doesn’t bring in revenue right now. However, Apple has shown it really pays to think different and essentially tell it’s customer to buzz off because they don’t know any better. And yet I still come back to Apple…genius.

Everyone loves a great comeback story and recently Detroit has a great one to tell. Beginning in the 1950′s, the American car makers Chrysler, Ford and GM all based out of Detroit helped shape America. The “roaring 50′s” as it was called allowed people to live in Suburbia and yet commute to work because of the car and the government’s road infrastructure build out. When you watch the highlight reels of new car introductions from that era it’s similar to the Apple launches of today. The world would wait and watch in anticipation of what new “awesomeness” would come from Detroit. The job to have back then was working for an automaker. Detroit was the hub of industrial activity, home of Barry Gordy and Motown Records, the first record label for Michael Jackson. Then the late 70′s came and Detroit was no more.

What happened? It was a combination of high oil prices, hubris and Honda. During the 1960′s Detroit was obsessed with cheap fuel, big horsepower and open roads which led to their focus on muscle cars - Chevelle, Camaro, Mustang, Charger, Corvette, Pontiac GTO, and many others. Once the oil crisis hit in 1973, Detroit didn’t have a backup plan and the Japanese took the opening to launch their cars. The fuel efficient Honda Accord debuted in 1976 and quickly made a name for itself. Honda did all the right things and soon the Honda Accord became the number one selling car in America.

In the 80′s American car companies had a bad reputation for shoddy cars, interiors made of cheap looking plastic and designs that only a grandmother could love – case in point the Pontiac Aztec. During the 90′s the Japanese were doing so well in North America they all launched their own luxury nameplates – Acura (Honda), Infiniti (Nissan) and Lexus (Toyota).  This led to them selling even more cars and the Detroit automakers slipped even further in sales. All the American car makers were focused on fleet sales to the rental car companies who only wanted cheap and boring cars to rent which was an easy to market to go after, but margins were slim in that segment.

During the early 2000′s, American car companies were focused on the high-margin SUV market and captured that segment with force. However, once the financial crisis hit most of them faltered. The American car makers from Detroit approached the US government for a bailout and got close to $25 billion.

Since then, the American car makers have been making hit product after hit product. The Ford Fusion and the upcoming Dodge Dart are two examples of products that consumers actually want to buy. In addition, many consumers (myself included) who would have never looked at American cars are actually looking at them once again. The Chevy Cruze in India has been a moderate hit and looks quite nice, also the value for money is another reason its doing well in India.

When I was visiting Los Angeles in August, I was impressed with the number of Ford Fusion’s and Ford Flex’s on the road. Southern California is car crazy and if a car can sell in that hyper-competitive market it will do well anywhere. In fact Honda has their headquarters in Torrance, California and Honda used to reign over this market. Sadly, the hubris that hit the American automakers in the past is starting to appear at Honda. Honda’s highly anticipated Civic re-design was panned by consumers and Consumer Reports dropped the Civic as a recommended model. And the previous number one selling Accord has started to look dated compared to the competition, so the story continues…

For all the talk about companies coming to an emerging market like India and setting up shop, no one has been more passive aggressive then the Volkswagen Group. VW is most famously known for its Beetle – one of the best selling cars of all time at over 21 million units. In a bid to move beyond the Beetle, VW in the 90′s started to acquire many brands and their complete portfolio is quite impressive: Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and VW. The VW Group also owns 49.9% of Porsche and set to take 100% ownership in the near future. The linkage between VW and Porsche goes way back, VW was founded by Ferdinand Porsche. Then Ferdinand went on to start Porsche where his son created the iconic 911. Even today the bonds are strong, the Porsche Cayenne and VW Touareg share the same chassis (platform in car speak).

Long Term Commitment
Enough of the history lesson, back to VW’s big bet on India. VW’s foray into India started in 2001 when it launched the Skoda brand and started selling the Octavia. Around 2007, the VW Group also added Audi, Bentley and VW to their Indian product line. These cars were available by importing them individually, however servicing was always an issue since they didn’t have official dealers on the ground in India. In another sign that VW is here for the long haul it opened a massive manufacturing facility in Chakan (near Pune) in 2009 and spent USD $500 million in the process. Towards the end of 2011, VW will add the high-performance brand Lamborghini to the mix. They will most likely unveil the first Lamborghini showrooms when they ship the highly anticipated fire breathing 691hp Aventador to India.

Breakout Hit
In the 4 door mid-luxury segment, the market leader for years has been the Honda City. The break out hit for VW has been the Vento which was introduced in 2010 and already has beaten the Honda City as the number 1 selling car in that segment. The Vento’s success is a combination of Honda lagging and VW bringing the right product to the market, namely a diesel engine. With petrol prices only going up VW was right to tap into the Indian psyche of affordability. The Honda City has been around since 1998 and all the brand loyalty it built up went down the drain once the Vento was launched and petrol prices started to rise. Honda hit back in early June 2011 with price cuts by attributing it to “cost reduction efforts in the supply chain” which sounded like public relations speak then reality. But it didn’t matter, by then the damage was done and the Vento took the top spot.

Audi’s Rise
Around the world Audi has always been number 3 when compared to the more well known German brands of Mercedes and BMW. However, that is changing in India partly because Audi was able to capitalize on the new designs featuring the “LED eyelids” that are now copied by every other car company. In addition, the Japanese strategy of not bringing their luxury brands of Acura, Lexus and Infiniti to India was a missed opportunity that Audi used towards its advantage. Toyota which has been in India since 1997 has built a large distribution channel and could have easily used that existing network to seamlessly introduce the Lexus brand but failed to do so. Lastly, Audi got some great mileage with their feel good advertising campaign featuring cricketer Ravi Shastri. Ravi was shown sitting on an Audi 100 on the cricket field when India won the World Championship of Cricket in 1985 where he was selected as the man of the match (most valuable player). Obviously it was unplanned and Audi capitalized on the imagery.

Market Segmentation
Possibly the only issue with the VW Group’s arrival into India is their market segmentation for their brands. When Skoda first came to India, it’s reputation in the Western European countries was not very high and thought of as a sub-standard product. However, under the VW umbrella it slowly upgraded its perception and in India it’s often thought of as a premium brand. Many consumers gravitate towards the  Skoda Superb who want luxury but want to “fly under the radar” and not appear to flashy. With the arrival of Audi and VW the lines of market segmentation have started to blur. The Audi A4, Skoda Superb and VW Passat are all very similar and in fact share the same chassis. And therein lies the problem, if a consumer wants to spend Rs. 30 lakhs on a car which one – A4, Superb or Passat?

Summary
Overall, the timing of VW’s entry into India couldn’t have been more perfect as other competitors have been busy with their own problems. The American automotive giants are dealing with their domestic demand issues. The Japanese automakers are taking a very slow approach to India when it comes to their luxury brands – Acura, Lexus and Infiniti.  Lastly, the German automakers Mercedes and BMW have been battling for the top spot for number of cars sold in India. BMW took the crown with over 6,200 cars sold in 2010, which is a very small piece of the overall Indian car market. Since the VW Group has many brands and able to target a much wider audience it will most likely lead overall sales in the years to come.

The above article was syndicated on VCCircle.com.