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Volvo to focus more on tier-II cities: Tomas Ernberg

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In 2011, Swedish luxury car maker Volvo's Indian arm Volvo Auto India wondered whether it should leave the country since the company was not doing well in a market where its global competitors were doing “extremely” well. It was then that the company found that its strategies need to be reworked, including its focus on tier-II markets. In a conversation with T E Narasimhan, Volvo Auto India's Managing Director Tomas Ernberg said the company is back on track and believes that India is an important market for Volvo. The company will play a significant role in the luxury car segment in India and aims a market share of 15% by 2020.

The car manufacturer also said some of the lessons which were learnt in India, especialy tapping tier-II towns, will be taken to global markets. Besides bringing new products, the company is also planning to bring its own captive financial arm to support its growth.

How do you see India as a market?

India is an underdeveloped market and it has long way to go. Opportunities are fantastic for car manufacturers like us and we have taken India as a serious market.

In 2011, we were not performing well, while our competitors doubled and even tripled their sales. We asked ourself what are we doing here? Should we leave the country. We were stuck in the middle and then realised strategies should be changed and when we did that it reflected in our sales.

In 2012, Volvo was the fastest growing company in the luxury segment. We sold 810 units in 2012, up from 325 in 2011, an 155% increase and in 2013 we set a target to deliver 1,200 units.

One should look at India as a long term investment. The Indian car market is going to reach 20 million units by 2020 and luxury car market would account for 15% or 1.50 lakh luxury cars in the country. This is more than the total industry in several European countries like Sweden, which is 1.25 lakh units a year market.

What were the strategies that helped the company in 2012?

Focus on tier-II markets and more visibility programmes were helpful. For instance, in Hyderabad, Volvo's market share was hardly in single digit in 2011 and we set a target of 12% towards which lots of brand building and customer related activities were conducted including new IT infrastructure to connect with the customers and more customer engagement programmes including touch points in restaurants, night clubs, polo, golf, road shows and others -  all this helped the company. To our surprise, our market share in 2012 was 22% and we have beaten Audi and Mercedes in this city.

Now we are taking this learning across the country and even Sweden took notice of this and is studying whether it can be replicated in Belgium.

Has the strategy helped improve your overall market share in the country?

Yes, from 2.8% it has gone to 4%. This year we have set a target of 4% and by 2020 we expect to garner 15% market share in the luxury segment.

Our brand image is still low in India. While our marketing budget has doubled, it is still less than other German companies. We spend 5-6% of our total turnover on marketing, as compared to 2-3% by other companies.

What kind of launches are on the cards? Are you looking at any other initiatives like setting up a financial arm to support your targets?

2013 will see many launches from Volvo.

To start with, the V40 Cross Country will be launched in the month of May or June. It will compete BMW X1 and Mercedes B Class. It is a sports wagon and is targetted towards people who like outdoors activities like sailing, golf, tennis and younger people. This product will contribute 15% to the company's overall sales in 2013. While the price for the model is not yet decided, it will be expensive compared to competition.

With regards to the financial arm, we are discussing the option now. May be in 2014-15 we will bring Volvo Finance, which is now operating in Sweden and in China. Previously we were working with Ford Credit, and after the break up with Ford about 18 months back we started our own captive arm.

The entry level price for Volvo currently is around Rs 26 lakh. Do you have any plans to introduce a new car at the entry level?

We will never enter the mass market, instead we will go other way. We will launch much more luxury, premium and advanced vehicles. For instance, we promise a new car in 2020. This vehicle will come with a guarantee that if you sit in the car you will not die or get injured. No other car manufacturers offers this guarantee.

Is there a manufacturing plant for Volvo on the cards?

It is not in the agenda for now as we can price our product competitively now.