Cross-badging fails to rev up car sales

  • Dec 5, 2012
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Cross-badging: Same car, different brand has few takers in India

Renault Pulse

It's the auto world's equivalent of older wine in a spanking new—and often better-designed -- bottle.

Cross-badging or badge engineering, a strategy used globally in the auto sector by group companies or partners sharing the same car or platform with minor engineering changes, has not met great success in the Indian market place.

Rather than working out as a win-win proposition, cross-badging is resulting in cannibalisation, with one brand eating into the share of the other. Renault and Nissan, which have a global alliance share compact cars Micra and Pulse, respectively; it's the same car, with the same specifications, features, dimensions and petrol and diesel engines, except that the Pulse has a more aggressive exterior look.

Ditto in the sedan segment, with Nissan rolling out the Sunny followed by Renault with the Scala. Similarly Volkswagen (VW) and group company Skoda have built the Vento and Rapid, respectively, on the same platform in the sedan segment.

The biggest benefits of cross-badging are savings in design and engineering costs, and gains in sales with minimal incremental investments. Whilst the partners - or at least one of them -- may be doubtless benefiting from cost-savings, instead of a pick-up in sales the badge-sharing automakers have witnessed cannibalisation to the tune of 30-40% over the past nine months.

Consider: In fiscal year 2012, Nissan's Micra averaged monthly sales of 1,553 units. Once Renault launched the Pulse in January 2012, however, Micra sales dipped to around 1,300 units a month.

Renault, for its part, has been selling 500 to 600 Pulse hatchbacks per month. Combine both brands' sales, and it's clear that a second badge hasn't resulted in a pickup in sales.

Both the Micro and the Pulse are way behind the leader in this segment, Maruti Suzuki's Swift, which averages 12,000 to 14,000 units a month. It's not much different in the sedan segment, with Nissan Sunny's sales halving to 1,000 units after the launch of Renault's Scala in September.

Renault Scala

The Scala will have rack up some impressive volumes in the months ahead to justify the benefits of cross-badging—and come anywhere close to segment leader Verna, which does about 4,000 units a month.

At the VW group, prior to the launch of the Skoda Rapid in November 2011, VW's Vento was averaging sales of 3,000 units per month. It's been a steady slide since then - to an average of 2,500 units in the first half of 2012; and over the past four months, to 1,750 units.

The Rapid is not too far ahead with average monthly sales of 1,900 (after beginning strongly with sales of some 2330 units a month). Says V G Ramakrishnan, MD, Frost & Sullivan: "The rebadging strategy hasn't worked so far and the numbers are an indicator. Consumers are smarter today; they do a lot of research online before buying a product. Dealers of competitors too are quick to inform customers about sameness of, say, a Renault and a Nissan car; or a Skoda and VW product."

The cross-badgers contend that the numbers have to be viewed against the backdrop of a slowing market - in the seven months of the current fiscal year, passenger car sales have been in low-single digits; if passenger vehicles have managed to grow by 10% it is thanks largely to a 60% spurt in utility vehicles.

Automakers also point out that the benefits of cross-badging have been proven in global markets. Those benefits are beginning to be seen here too, says a VW spokesperson.

"The combined numbers of the two products (Vento and Rapid) are always more than the sales of one product. Thus platform-sharing basically leads to higher sales of the two brands put together which eventually is a good thing for the VW group as a whole," reasons the spokesperson.

Nissan Micra

A Renault India spokesperson explains that platform-sharing ensures products can be introduced in a short span of time. "It has helped us offer a full range of five products in short span of 15 months and establish Renault as a brand. Our strategy is to offer a wide range of products, and platform-sharing with our partners has helped us to do this," said the spokesperson of Renault.

Nissan Motor India's spokesperson asserts the company is using common platforms and components to develop two different cars, each with unique design and styling cues that appeal to different demographics.

"We only move forward with platform and component-sharing projects when it promotes brand integrity and customer satisfaction," said the Nissan India spokesperson.

In future, there's also a strong possibility of Nissan cross-badging the successful Renault Duster with some design changes, although the spokesperson for the Japanese company muttered: "As a policy we don't comment on future products".

Unni Krishanan, global strategy director, Brand Finance Plc, makes the point that joint badging was one of the key reasons behind General Motors' bankruptcy in the US three years ago. He says GM toyed with the idea of cross-badging, which only resulted in customers getting confused as some of its iconic cars began looking like copies of each other.

"Joint badging could deliver the numbers in the short term; however in 2-3 years, the differentiation gets diluted and it harms the company in the long run. Companies are fooling themselves, if they are thinking by advertising same product differently for different brand," says Krishnan.

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