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After Sales Service In Luxury Car Segment In India Marketing Essay

5017 words (20 pages) Essay in Marketing

5/12/16 Marketing Reference this

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Introduction

Quality, price, and service are three factors are critical to the success of any sales effort. Most companies take great care to offer to their customers, products of great quality, meeting various quality standards. The price of a product is dictated by the demand for such a quality of the product. As products offered by major players in most industries have become comparable in quality and price, after-sales service is fast becoming an important differentiator.

Many definitions have been given for after-sales service by various marketing experts, based on not just what after-sales service means but also what it means to the customer and the company.

“After-sales services” has been used the most, to describe services that are provided to the customer after the products have been delivered (Vitasek, 2005). “After-sales services” are often referred to as “product support activities”, meaning all activities that support the product-centric transaction (Lele and Karmarkar, 1983). It also being defined as “customer support” elements where all activities that ensure that a product is available to consumers “over its useful lifespan for trouble-free use” (Loomba, 1998). Author have pointed out that after-sales plays a key role in supporting marketing activities to enhance customer loyalty, and thus to increase profitability in the long term (Saccani, 2006). According to Alexander (2002) and Baumgarter (1999) profit margins can be generated higher by delivering the after sale service compared to product sale without it. It may generate at least three times turnover of the original purchase during a given product lifecycle. After sale services represent one of the few constant connections those customers have with a brand (Gallagher 2005), while Lewis (2004) pointed out how it is affected by and affects the brand image of a firm. Gallagher (2005) point to after-sales as a way to recover profits lost due to the fierce competition on sales prices of original equipment, representing at the same time “one of the few constant connections that customers have with a brand”. After-sales is thus a potential source of competitive advantage for the firm (Armistead and Clark 1992; Goffin 1999).

But in the simplest of terms, after-sales service is defined as – periodic or ‘as and when required’ maintenance or repair of equipment by its manufacturer or supplier, during and after a warranty period.

After-sales management is considered part of customer relationship management (CRM), that is, the maintenance of all customer relationships. The after-sales management is also part of the sales process if it is to be classified as step, in a further pre-sales phase that flows ideally. This is because any customer who is happy with the after-sales service offered by the company is very likely to purchase from the same company again while also recommending its products to friends and family.

After-sales management arose from the realization that the customer relationship does not end with the deal, but spans over the entire life of a product or an item or service, for additional marketing efforts to take advantage of this period by causing and customer loyalty to increase with increasing customer satisfaction which is the main goal of the after-sales marketing.

Customer service, warranty work and the continued support of the customer by the seller are typical tasks of the after-sales management. However, the tasks involved in after-sales effort by the company are no longer limited to these. After-sale services now, include not only the customer claim and warranty management, but also the maintenance operations, the spare parts planning and logistics, and all the operations with a lasting effect on customer satisfaction. There are many reasons why after-sales are important for product managers.

The most important of these are:

Sales services have a strong impact on customers’ satisfaction and consequently on the repurchase rate of a product because a customer who is experiencing a problem with an after-sales product will tend to switch to another product.

After-sales service is part of the product’s “Brand Promise” and it is up to service to ensure the reality of the value proposition promised by product managers to customers.

Reliable and robust after-sale services can increase the acceptance rate of a new product by making mainstream customers much more secure to adopt an innovative solution.

A sound and consistent after-sales offer often contributes to a sustainable competitive advantage, less easily duplicable than just a product.

A more tangible incentive to provide good after-sales services is that they can double profit margin compared to the profitability of the goods sold. A recent study by AMR found that while after-sales service represents on average 24% of revenue, it generates an astounding 45% of profit. This share of revenues can be even higher, as in the case of Rolls-Royce where after-sales represented 55% of overall turnover in 2004.

For consumer products, it can be estimated that after-sales services can generate between 20-30% of total sales if correctly managed. The bulk of the margin does not come from the direct repairs but from spare parts, whose margin can be more than 50%, and support and warranty contracts whose margin may be above 75%.

There is still room for growth as many marketers and product managers have not fully grasped and made use of the whole potential of after-sale services, especially in a developing country like India. This can be done by first, segmenting the after-sales market according to customer’s needs and second by designing the correct service offer.

Various companies, such as Dell, Lexmark, Raytheon and Agilent have conducted research in the needs and expectations of their customers regarding after-sales services. Dell Enterprise Field Operations is consistently utilizing customer feedback to increase their service levels and manages to stay one step ahead of the competition. All the surveys demonstrated that although price is important to customers, the key issues are swiftness of delivery, reliability, and availability of repair and maintenance services.

After Sales Service in the Automobile Industry

The automobile industry, like many other, comprises of firms that have a Gillette “razor and blade” marketing strategy, after-sale product and services cannot be considered independently of the product in terms of market share and profitability because while the product is used to enter the market, the money is made on the spare parts. It is no surprise, therefore that a recent study by General Motors Corp. indicated that the company made more profit with its $9 billion after-sales than with its direct $150 billion car sales.

The value system in any car manufacturing firm can be attributed to four major players; component suppliers, car producers, dealers or the point of sale, and buyers. These players are all affected by any turbulence in the car industry. As a result they all contribute, to various extents, to the attempts of structural change taking place in the industry.

Some of the major trends or key factors affecting each of the four key players are [Business Process Re-engineering & Management Journal Vol. 2 No. 2, 1996]:

(1) Automobile suppliers

Polarized competition.

Internationalization and globalization tendency (for example the global sourcing producer strategies and global competition, etc.)

Change from just component suppliers to system partners and suppliers integrated into the system.

Integration into the producer system based total quality management process.

(2) Automobile producers

Concentration of corporate strategies on product, process innovation and co-operation.

Emphasis on customer loyalty and development of repeat buyers at point of sale.

The choice of place to manufacture and its inherent implications and cost savings strategies has become a key focus of corporate strategies.

Global thinking and globalization.

Reduction of over capacity

Concentration on return on investment (ROI) improvements.

Continuously expanding model width and depth.

Shorter model lifecycles.

Increasing use of merchandising tactics.

(3) Automobile dealers

Over capacity of dealers in the European market which has forced the car companies to move out of their parent countries for furthering business

Concentration tendency among dealers (take-overs, mergers and fusion).

Reductions in profit levels and return on sales, etc.

Increasing capital requirements.

Under capacity and under utilization of facilities.

Loss of market share in used car, and parts and accessory (after-sales) business to specialized firms

Pressure from producers to increase product intake levels.

(4) Automobile buyers

Stagnating/cyclic demand in most markets

Stronger price/quality awareness.

Increase in service requirements and importance of the service part in the buying process.

Increasing difficulty in telling the difference between available models.

Wish for totally new car concepts (expectation of better security, environmental considerations, etc.)

In the automobile industry, the after-sales service is defined as “all activities geared towards maintaining the quality and reliability of the car carried out after the customer has taken delivery with the goal of ensuring customer satisfaction”.

For most part, after-sales on the producer level consists of three major departments; the parts, accessories and pure service, mostly technical. This separation was seen as necessary partly because of the difference in profit margins to be made on parts and accessories but also because of the strategies of the importers in which accessory additions for the international market were made to imported cars on their arrival. These accessory additions were booked as parts or accessories sold for accounting purposes.

After-sales is, therefore, seen as having a product plus a service component (additions or changes or advice carried out after delivery of the car to a customer). Where “product” is defined as all components that can be fitted to the car to enable it to meet the requirements of the owner and “service” as human or mechanical component/interaction required to install or make aware of the possibility of installing a product on the car. These include advice, information, and all interaction with the car owner/user.

Thus the after-sales sector, long after the customer has taken delivery of the car, represents a means of continuous contact between the car producers and the customers via the dealers. As a result of the unique vertical marketing system practiced in the automobile industry and the fact that the balance of power lies with the car producers, they have been forced to and must assume leadership in an after-sales process geared towards retaining the end customer through total car after-sales service satisfaction. Whatever after-sales concept they sanction, it must optimize both the delivery of the product as well as the service aspect of the process.

Underlining all these trends and the competitive pressure is the realization in the car industry that the present downward trends in volumes can only be stemmed by an increase in customer loyalty and the development of stronger brand/corporate awareness among customers. The stagnating/cyclic demand, stronger price/quality awareness, increased emphasis on service and general economic pressures which have reduced buying power have necessitated the need to develop strategies which are geared towards achieving greater brand loyalty among customers. There is more than ever, a need to ensure that present customers are not only satisfied but continuously delighted.

Literature Review

Considerable research has been conducted in the field of After-Sales service especially with regard to electronic equipment. A variety of studies have revealed the importance of after-sales service in the automobile industry and others, as it is both, profitable and allows the company to instill confidence in the customer so as to have him recommend the company and trust the company for his own repeat purchases.

However, surprisingly little work has been done in the field of Automobile After-Sales Service especially in the luxury car segment. The studies that are available on the subject have been reviewed in this section.

Best practice in the car after-sales service: An empirical study of Nissan and Fiat in Germany conducted by Ehinlanwo and Zairi found that:

Fiat ranked its after-sales promotion, distribution and service policies as effective with 60-79% satisfaction level while its after-sales price policy was only ranked as partly effective with 40-59% satisfaction level.

Nissan ranked its after-sales distribution policy as very effective with 80-100% satisfaction level; however its after-sales promotion, price and service policies were ranked as partly effective with only 40-59% satisfaction level.

A second part of the study attempted to rank Toyota and Ford on similar parameters, delineating the sections where the respective company’s after-sales policies were weak.

Automotive After-Sales-Service Innovations – An Empirical Analysis conducted by Dirlenbach revealed that the link between the customer orientation and long term success of a service innovation project was both validated in the quantitative as well as the qualitative analysis. It was deduced also from the results of the qualitative expert interviews that taking up customer needs by either actively collecting feedback on new features of after-sales services or by actually joining forces in the development of such features would increase the likelihood of a successful service innovation. A further finding was the positive impact of IT-professionalism on the short term success.

A Study on Effect of After-Sales Service on Consumer Preferences and Satisfaction of “Honda Motors” was conducted by Jain to find that there was a strong link between customer patronage and satisfaction with after-sales service offered by the company. After-sales services offered were studied in terms of reliability of guarantees and warranties, car insurance, free services and customer education provided to drive the car.

Auto survey: Improving after-sales service helps retain customers, an in-depth article written by Lamure, Hoffmann, and Flees interprets the results of survey conducted by Bain and Co., a consulting major. It asserts that winning new customers would require car manufacturers to develop more reliable, exciting, and fuel-efficient vehicles, a task that could take years. But the survey suggests that automakers have opportunities to improve their business performance in the short term by focusing more on the customers they already have by offering exceptional after-sales service. Excellent after-sales service provided by Lexus, Toyota and Honda were deemed as the reasons for repeat purchases and recommendation to friends by customers, of the 1800 American car owners surveyed who were asked to rate after-sales services offered by their car’s brand and on the basis were divided as promoters and detractors. The authors point out how dealer service is the key point of contact with customers at the critical time when most people are weighing their next vehicle purchase. Traditionally, the owners’ brand enthusiasm tends to erode as the vehicle ages and the warranty expires. But it is precisely at this point-about four years after the initial sale – that the leaders should capitalize on their loyalty advantage by using maintenance visits as opportunities to reinforce their ties with promoters and win over detractors. After-sales service is considered even more critical in China to build brand value as it is still a young market where many first-time buyers have yet to develop brand loyalty.

Back-End Story, a special report compiled by Sarkar and Verma and published in Economic Times, delved into the dissatisfaction of Indian customers of after-sales service offered by luxury car brands through their dealer partners, to assert that luxury car-makers had a long way to go before they could promise a service-support fitting the company image for consumers in India, concluding that “perhaps exclusivity has its limitations, and after-sales service is one of them.”

 

Problem Statement

The extensive review of the literature points to the acute absence of work done, to exclusively determine customers’ perception of the pricing of after-sales service in the luxury car segment, world-over. The review also revealed a complete lack of any previous work aiming to investigate the importance and expectation associated with pricing, distribution, promotion and quality of after-sales service of cars in India. Thus, the value of the paper lies in the fact that it presents the first attempt to examine this issue empirically.

Luxury car owners in India pay exorbitant prices to acquire their car, but it is not just a huge one-time investment. Every routine servicing is expensive, replacement of parts, even more so. Luxury car makers do not have a very strong after-sales service network in India either, which limits customers’ choice in service centers significantly and they are forced to stay bound to the few authorized service stations, even if they are unhappy about some aspects of the center at which they get their servicing done.

This, combined with the extremely stringent norms regarding voiding of warranty if repair is done at any place other than the authorized service center, is especially unfair to customers of luxury cars in India. In most of the developed world, the terms regarding after-sales service aren’t as strict because of proactive consumer groups who have, time and again, raised their voices against any unfair practices employed by car makers and their dealer networks.

This paper aims to evoke such awareness, and to encourage consequent work in the area, such that consumer groups here too, take note of unfair practices undertaken by luxury car makers preying continuously on their customers having provided them not with a car, but with a statement, that is very high maintenance.

Objectives

To determine the importance of After-Sales Service to Indian luxury car owners

To find the Indian luxury car owners’ expectations regarding Quality of After-Sales Support received by them

To determine if customers think the Pricing of After-Sales Service in the luxury car segment is unjustified

To investigate if customers of luxury cars in India respond to promotion of products by service centers

To compare customers’ perception of after-sales services of 3 major luxury car brands (Audi, BMW and Mercedes-Benz) over these common parameters

Domain

Luxury vehicle is a marketing term for a vehicle that provides luxury, that is, pleasant or desirable features beyond strict necessity at increased expense. The term suggests a vehicle with greater equipment, performance, construction precision, comfort, design ingenuity, technological innovation, or features that convey brand image, or prestige – or a combination of such features.

Automobile manufacturers market specific models that are targeted at the ‘creamy’ socio-economic classes and so, luxury vehicles are status symbols for conspicuous consumption. Luxury cars tend to offer a higher degree of comfort than their mainstream counterparts. While a high price is the most frequent factor, it is styling, engineering, and the consequent public opinion that determine which cars have such a status associated with them.

In India, away from the perceptual abundance of mass volumes and discounts, the luxury car segment thrives on the statements: power, style, speed and the heavy price tags that often range from several lakhs to crores. India’s top 10 luxury car models dominated by Mercedes Benz, BMW and Audi have seen a 57% surge in their sales in the period June, 2009 to May, 2010.  Audi A6, Mercedes Benz E – Class and BMW 3 Series models saw more than 100% growth from 2009, in 2010. 

Luxury car segment in India is one of the fastest-growing, with BMW retaining its leadership position for the two consecutive years in 2009 and 2010, exceeding its target sale of 4200 units in 2010, even as Mercedes-Benz and Audi continued to record excellent growth, with Mercedes -Benz selling 5,819 cars in 2010, the highest-ever sales figure registered by the company and Audi selling 3003 units, growing at 81%.

Their strategy for the Indian market has been, as claimed by business heads at Mercedes-Benz and Audi, focusing on offering a comprehensive product portfolio, delivering the highest value to the customer as well as ensuring world class sales, after sales and vehicle ownership experience. These initiatives coupled with aggressive product launches and network enhancement to smaller towns and cities to reinforced the strong traction with the Indian market.

It is in such an environment, where aggressive marketing initiatives are being deployed for increasing luxury car consumption in India that the importance of After-Sales Service offered by these very brands could prove to be a source of dissatisfaction or a differentiator in the competitive Indian market. Such is the domain of the present paper.

Research Methodology

The present paper examines the importance of after-sales service to Indian luxury car owners, their expectations from the automobile brands they associate themselves with and tries to identify the major causes for dissatisfaction with the after-sales service provided by the brand.

Research Design

As the perception of customers of various aspects of after-sales service offered by their automobile brand is being sought, the chosen research design is a descriptive using quantitative research. By using research tools such as rating scales that allow ascribing quantitative values to qualitative data to facilitate statistical analysis, the present quantitative research seeks to confirm certain formulated hypotheses.

Techniques of Data Collection

Primary Data

The present research has been conducted by administering structured questionnaires to a total of 30 customers of luxury car brands in Delhi region.

A pilot survey of 7 respondents was conducted in the first week of data-collection. It was found that male owners of luxury cars in the age group of 30 to 40, drive their own vehicles and had it serviced themselves at the authorized service centers. They were, therefore, more informed on the processes involved and could evaluate the quality of servicing received. Thus all respondents for this research are males between the ages of 30 to 40 years who get their cars serviced themselves.

Secondary Data

In the project the information from different sources about top luxury car brands in India and work done on after-sales servicing of cars in India and elsewhere have been collected from:

Research reports in journals

Articles on the Internet

This research consists of both primary and secondary data. The primary data is needed to fulfill the purpose of describing the perception of customers of luxury car brands in India regarding the after-sales service offered by their brands. This information was collected using questionnaires which thus played an essential part in the collection of the data required for the research.

The secondary data was collected from existing information sources such as journals and articles published in online databases. The frame of reference was mainly built upon secondary data.

The formulation of the questions for the research instrument used, and the analysis of the collected data were facilitated by the secondary data, which made the results easier to interpret and conclusions to be easily drawn. The comparative analysis of the 3 major car-brands on after-sales service support as perceived by their customers on various parameters is presented in the analysis part of this thesis.

Research Instrument

The data was procured by the means of a two page questionnaire in which questions were devised to minimize ambiguity, paying particular attention to the wording and the sequence of questions and ensuring a professional style and format.

Research tools such as Likert type rating scales that allow ascribing quantitative values to qualitative data to facilitate statistical analysis, were used to allow methods such as chi-square testing to confirm formulated hypotheses.

Thus, in the present research on “Comparative Analysis of After-Sales Service in the Luxury Car Segment in India”, Structured Non-Disguised Questionnaire has been used.

Sampling

In this research the following steps have been followed:

Target Population: The target population used for sample selection was from Dept. of Traffic databases

Geographical Spread of the target population (Sampling Frame): The area of research is Delhi for primary data collection by way of Questionnaires, as Mr. Manjit Singh Bala (Managing Director, Tai-Pan Traders, dealers for Mercedes-Benz) in an article stated that the company annually records maximum sales from Delhi

Sampling Method Used: Non-Probability Sampling methods that is, Convenience Sampling and Snowball Sampling was used.

Sample size: the sample size is 30.

Their break-up is as follows:

10 are Mercedes-Benz owners

10 are Audi owners

10 are BMW owners

Software Used

SPSS Statistics 17.0

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Results and Discussion

In this section the data gathered by way of administering the questionnaire to a sample size of 30 luxury car-owners in Delhi, has been analyzed to achieve the stated objectives.

To determine the importance of After-Sales Service to Indian luxury car owners

Statements 2, 3 and 13 were incorporated in the questionnaire to determine the importance of After-Sales Service to Indian Luxury Car Owners.

A majority (53%) of the sample admitted to not having conducted adequate research about the after-sales service offered by the brand of car before they purchased it. Only 23% of the participants agreed that they had conducted any research about the after-sales service. Indeed, it is because of this very reason that customers feel somewhat cheated when they get after-sales service that is incongruent with the prices charged for the same.

A clear majority, that is 93% of the respondents strongly agreed and the remaining agreed that after-sales service support would without doubt affect whether they recommend the brand or model to their friends and family. This is in absolute correspondence with the survey of 1800 customers, as conducted by Bain and Co. in the United States which found that good after-sales service had a strong and direct impact on whether the customers would be inclined to recommend it to their friends and family or not.

As expected, an overwhelming majority (93%) of the respondents agreed that customers would not re-purchase from a brand that they’d had a bad experience with, with respect to after-sales service received by them. This particular study is especially important for luxury car brands to know, as they assume that customers of expensive cars buy the car only for brand value and would still continue to purchase from the brand if the customers are not entirely satisfied with the after-sales service received by them. However, evidently such customers do exist, given that 6% of the customers strongly disagreed with the statement.

To find the Indian luxury car owners’ expectations and perception regarding Quality of After-Sales Support received by them

Statements 4, 5, 6, 7 and 12 were incorporated in the questionnaire to determine what Indian Luxury Car Owners expected from the after-sales service offered by their brand of vehicle.

As evident, most of the customers, about 86% receive timely updates and notifications from the service-center when their vehicles are due for servicing.

On this parameter, most customers seem satisfied with their service centers.

A whopping 86% of respondents feel that there is indeed a need for more service stations in the same city. Most luxury car brands in India have partners looking after their after-sales service and with regard to after-sales service, their network and distribution are weak. This question was incorporated in the questionnaire to confirm this very assertion.

43% of the respondents said they do not receive adequate on-road support from their service centers, if their car broke-down suddenly. Only 36% of the respondents agreed that they got good on-road support form their service centers, indicating that there is much room for improvement on this front.

Only 13% of customers were dissatisfied with the average time taken for servicing of their vehicles. However, only 46% agreed that they were happy with the time taken for the same. This indicates that most customers so not feel strongly about time taken, as a parameter to evaluate after-sales service received by them.

It is important to note that absolutely none of the respondents disagreed even slightly with the statement that customers wanted the service center to discuss problems, causes and solutions on how to avoid same and common problems with their vehicles in future. Also important, is the intensity with which the respondents strongly agreed with the present statement indicating just how important this factor has become for customers.

To determine if customers think the Pricing of After-Sales Service in the luxury car segment is unjustified

Statements 9, 10 and 11 were incorporated in the questionnaire to find if customers of Luxury Cars in India thought felt that pricing of after-sales service offered by the company is unjustified.

A routine servicing is given to the car every three months or after it has run a specific number of kilometers, whichever happens first. As deduced from the responses, maximum customers pay from Rs. 20,000 – 30,000 per service. This differs from model to model but after-sales service of luxury cars in India costs anywhere between Rs. 15,000 – 50,000 per servicing, which is quite steep.

This statement was included in the questionnaire to confirm the primary assertion and reason for conducting this research. As evident, the majority of the respondents agreed (with 40% agreeing strongly) that they really did believe that service centers take advantage of them, because of their prevalent assumption in the industry that a person who owns an expensive luxury car would not mind paying for expensive after-sales service. Important to note: only 16% of the respondents disagreed with the statement.

50% of the respondents agreed that prices for paint jobs or part replacements etc were unjustified. Others preferred to not comment on this factor. Again, only 13% of the customers disagreed with the statement, clearly indicating that none were really happy with the prices charged for servicing received by them.

To investigate if customers of luxury cars in India respond to promotion of products by service centers

Statement 8 was incorporated in the questionnaire to find if Luxury Car Owners in India were responsive to products that were promoted by servic

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