In August $2004,$ a leading business newspaper reported that Hyundai

Motors India Limited $($HMIL$),$ an Indian subsidiary of the South Koreabased

Hyundai Motors Company $($HMC$)3$ was expected to reduce the price of its

flagship car $-$ Santro $-$ by as much as Rs $40,000.$ Industry experts were

expecting a reduction in Santro's price in response to the price war being

waged by the market leader in India $-$ Maruti Udyog Limited $($MUL$),4$ which

had reduced the price of its largest selling car in the B segment $$ Alto $-$ by

Rs $58,000$ in two price cuts starting from September $2003.$ This move had

resulted in Alto replacing Santro as the largest selling car in the B segment

in the period January to June $2004($Refer Exhibit I for the market

segmentation of the Indian car industry$).$

Marketing Management Case Studies $|$ Case Study in Management,

Operations, Strategies, Marketing Management, Case Studies Rebutting the

report on price cuts, HMIL's managing director, BVR Subbu $($Subbu$)$ said,

$"$We are not cutting prices on the Santro. We have allowed our competitors

the prerogative of cutting prices."$5$ Several dealers of HMIL also felt that the

company would not reduce Santro's price as it had not adopted such tactics

earlier.

Santro had been the most successful product of HMIL and was also the

largest selling car in the B segment till the fiscal year $2003-04.$ Introduced

in late $1998,$ Santro had emerged as the second largest selling car in India

after MUL's M$800$ and had retained its position till March $2004$

$($Refer Exhibit II for the total units and value sales of the top eleven car

models in India$).$

In mid $2004,$ HMIL with its four models, Santro, Accent, Sonata and

Elantra, was the second largest car company in India with $19\%$ market

share in the industry. The company was planning to launch another model,

'Getz', in September $2004.$

Analysts attributed HMIL's success to its ability to launch technologically

superior products and its innovative marketing strategies. However, they

expressed concerns that the company relied heavily on Santro and any fall

in demand for that model would hit the company.

It was felt that the introduction of new cars by the competitors and pgrading

& price reduction of existing cars in the B segment would affect Santro's

sales. This would lead to a loss in Santro's market share. $($Refer Exhibit III

for the comparison of features of various models in the B segment$).$

For a long time after India became independent in $1947,$ the car market had

just two models to offer $-$ the sturdy 'Ambassador' from Hindustan Motors

$($HM$)$ and the sleek 'Fiat' from Premier Automobiles $($PA$).$ This was the result

of Government of India's $($GOI$)$ decision to keep the car industry tightly

protected.

For HM and PA$,$ the GOI dictated as to what type of vehicle the two

companies should manufacture. No other domestic or foreign car

manufacturer was allowed to enter the Indian car industry. The restriction

on foreign collaboration led to poor technological improvements in Indian

cars. As a result, car prices remained high while quality was inferior. This

affected the growth of the industry. The demand for cars in $1960$ was

$15,714$ units and in the next two decades, this rose to $30,989$ units, which

meant that the Compound Annual Growth Rate $($AGR$)$ was just $3\mathrm{.}5$ per cent.

In the $1980$s$,$ the GOI felt the need to introduce an affordable small car,

targeting the Indian middle class. As manufacturing a small and affordable

car required better technology than was available indigenously, the

government tied up with the noted Japanese company, Suzuki. The

government formed a joint venture with Suzuki and founded Maruti Udyog

Limited $($MUL$).$ It held $74\%$ and Suzuki got $26\%$ equity stake in MUL. In

$1983,$ MUL launched the 'Maruti $800\text{'},$ priced at Rs $40,000$ Hyundai's Entry

in India

One of the major players that entered the Indian car market was HMC

through its subsidiary HMIL. Before making its move, the company closely

studied the industry for a year. The company's officials talked to vendors,

dealers and customers to get a thorough knowledge of the industry...

Marketing Santro: Santro received an encouraging feedback from customers

who appreciated its unique design that gave more headroom and facilitated

easy entry and exit... Launch of Accent: By mid $1999,$ the major players

realized that the $\text{'}$B$\text{'}$ segment would be the fastest growing in the car

industry. To cash in$,$ Telco re$-$launched its 'Indica' by introducing several

new features and solving the glitches in the original model...

Marketing Management Case Studies $|$ Case Study in Management,

Operations, Strategies, Marketing Management, Case Studies Repositioning

Santro By late $2002,$ the competition in the B segment had increased

significantly. MUL's Alto which was launched in October $2000$ had received

a good response. Although HMIL's Santro remained the largest selling car in

the B segment, MUL commanded the largest market share in this segment

due to t