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G1 S2 ECO Assignment.

Maruti Suzuki_Oligopoly_HBS Case Study

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Rounak Khatua
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21 views

G1 S2 ECO Assignment.

Maruti Suzuki_Oligopoly_HBS Case Study

Uploaded by

Rounak Khatua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Managerial Economics

PGP-1, Trimester-1
Batch 2024-26

Title of Study:
Maruti Suzuki India Limited: Sustaining Profitability.

Submitted By - G1
Rounak Khatua (24F242)
Lasnakavya Varatharaju (24F224)
Ruben Joseph Devasia (24F243)
Sannidhi Guruprasad Naik (24F247)
Mrinali Limje (24F230)

1
Q1. Discuss why car prices have remained relatively stable despite
fluctuations in input costs and competition and explore the factors
contributing to this price stickiness.

Factors contributing to the price stickiness has been discussed below: -


 Oligopolistic and competitive market:- An automobile industry is an oligopolistic
market, where few firms in the market are serving identical products to many
consumers. The firms engage in fierce price competition and react optimally to prices
charged by competitors i.e engaging into price wars. Any price change by one car
manufacturer triggers a corresponding reaction by the rival firms. For example, when
Maruti Suzuki in April 2004 reduced the price of Alto model by 7 to 8 percent, the
Hyundai Santro price also fell by 4.6 percent. Similarly in June 2009, when the
Maruti Alto price fell by 8.8 per cent, the Hyndai Santro and Tata Indica price fell
significantly. This price wars, has led to situation where a rise price of the cars will
make the customers to shift to other manufacturers, thus making the company
reluctant to increase the price, even in the face of rising costs.

 Consumer Price Sensitivity: - Indian market is predominantly dominated by the


middle class consumers, who are very price sensitive. With given rise of fuel costs
and income disparities, even the slightest increase in the price of the cars will lead
them to consider other choices. Therefore, Maruti and other car manufacturers have
focussed on offering fuel efficient cars and kept the price stable in order to maintain
the demand and the market share.

 Cost absorption by the manufacturers:- Despite the rise of raw materials like steel,
rubber, copper and other materials, car prices have been stable. Companies like
Maruti Suzuki, instead of transferring the rise in input costs to customers have
absorbed within the firm, in order to retain the market share and maintain the sales
volume. Maruti Suzuki have invested in more efficient production methods and as
well focussed on economies of scale to mitigate the rise in the input costs.

 Regulatory and Economic Factors: - Price stickiness was also influenced by the
changes in the regulations and fluctuations in the fuel prices. In the recent market
reform happenings where petrol prices are free from regulation and deregulation in
diesel which is about to happen, may have an impact on manufacturer supply and
demand, prompting manufacturers to hesitate in increasing the prices.

2
Q.2 What strategies can Maruti adopt to maintain profitability in the
future? (Evaluate the various strategic options Maruti can implement to
sustain profitability, considering both cost and revenue.)

Strategies which Maruti should adopt to maintain profitability in the future has been
discussed below:-
 Economies of Scale and improved production efficiency: - With the increase in the
input costs and other costs, Maruti should focus more on achieving economies of
scale. The state of art facility which Maruti is planning to build in Gujrat will be
crucial to achieve the economies of scale and thus lowering the production costs.
Besides, technical efficiency and improved production techniques can also help in
absorbing cost fluctuations, allowing the company to maintain profitability in the long
run.

 Expanding Sales Channels and focusing on After Sales Service: - Maruti’s


extensive service networks, with over 3,000 service stations , act as a key
differentiator in the competitive market. Enhancing the service networks and
leveraging on the newly introduced sales channels like the “True value” shops for
used cars can help to build customer loyalty and also help in driving repeat business
thus generating additional revenue.

 Focus on R&D and Fuel Efficiency: - Keeping in mind the price sensitive Indian
consumers and rise in the fuel prices, Maruti should focus in investing in fuel-efficient
technologies through R&D. This will help Maruti to keep up with the Maruti’s “fuel
efficient” brand image.

 Expanding to export market:-With the domestic automobile market started to


saturate , Maruti should leverage economies of scale to boost exports in emerging
African and Southeast Asian countries. These countries have huge demand of low cost
automobiles, thus opening new revenue streams for Maruti.

 Cost effective Labour Management: - Given the rise of labour costs and the recent
challenges in the Manesar plant, Maruti should focus on managing its labour relations
effectively. Retention of the contractual workers while focusing on their development
will help the firm to balance costs. Additionally strategic procurement of raw
materials and building new strategic partnerships with suppliers will help them to
keep the rise in the input costs in check.

3
 Diversification into Hybrid and EV cars: - With the rise in the fuel prices there is a
growing interest in EVs and Hybrids. Maruti should consider expanding its product
line to Hybrid or EV to tap this segment. The subsidies that these EVs receive from
government will also boost the inclination of customers towards these segment, thus
tapping this segment will significantly boost the revenue.

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