Winning in the race in local MPV market

Agus W. Soehadi, Contributor, Jakarta

An interesting development in Indonesia's automotive market is the boom in sales of Multi Purpose Vehicles (MPVs), which have topped those of sedans, Indonesian Automotive Industry Association data shows.

The growth rate of the MPV market is about 5 percent annually and MPVs made up almost 50 percent of total car sales last year. The high sales and the number of different vehicles available on the market are other indicators more consumers are making MPVs their first choice.

Recently Toyota and Daihatsu have joined forces to produce comparatively smaller MPVs. The two Japanese car-makers -- the first a giant in the auto industry -- have launched almost identical vehicles bearing the brands Toyota Avanza and Daihatsu Xenia for the Indonesian market. The price tag is about US$11,760. Both vehicles exude a modern sporty feel and have a utilitarian design -- they are a far cry from Toyota's popular Kijang.

Budi Setyadharma, president director of Astra International, said the plan is to sell a combined total of 50,000 of the brand- new MPVs annually.

And consumers are keen. Many do not mind waiting several months for delivery as the demand for the vehicles is much higher than the supply. Given the positive market response, both companies are planning an immediate increase in production.

Noted marketing guru Phillip Kotler has written extensively on how consumers decide to buy -- or adopt -- any new product or service. Let's apply Kotler's theory on consumer adoption to the MPV success story.

Kotler says each consumer has a different stage of readiness to adopt an innovation or a new product or service. The most ready cluster of consumers Kotler calls the innovators. The success of a product or service is based on convincing these innovators to make a purchase. Generally speaking, they are the smallest but most crucial target, making up about 2.5 percent of the market.

Innovators are vital to any marketer because they soon turn into kinds of ambassadors or indirect "sales representatives" for the next layer of consumers, the early adaptors or "early majority". Most companies' efforts in new product launches normally start to pay off at this stage, long before their products are bought by the last segment, the late majority or "laggards".

Naturally, the faster the early adopters buy a product, the sooner the company realizes profits. However, some products, even the most innovative ones take quite some time to reach this stage. Personal computers, for example, took almost 20 years to reach their early majority consumers. For mobile phones it took less than 10 years.

Basically, five variables influence the process of diffusion or the spreading of any one product to consecutive consumer clusters.

Relative advantage is the first variable. This indicates the superiority of a product in comparison to existing products. The second is compatibility, which, as the word clearly implies, is how well the product meets the customer's expectations. Variable number three is complexity. This refers to the ease at which the customer can optimize the product's features.

Next is divisibility. This is the opportunity available for intending buyers to try out products. The last variable, communicability, refers to how simple it is for consumers to convey their understanding of the product to other people.

The phrase multi-purpose vehicle and its abbreviation, MPV, became widely known in the country in the 1990s almost at the same time as Hyundai's introduction of the Trajet and KIA's launch of the Carnival. Soon Honda followed with the Odyssey. One of the MPVs unique selling propositions was that it embodied the concept of a luxurious family car priced at more than Rp 200 million.

The long-established Kijang, manufactured by Toyota, and Panther, produced by Isuzu, both well-entrenched in the conventional family car category, were soon attacked by the aggressive onslaught of the Korean brands. The latest contenders are the Avanza and Xenia, both from established Japanese auto producers. Because of manufacturers' consumer education programs, MPVs are now no longer a middle-class vehicle or the second car. For many Indonesians the MPV is now their first -- and probably only -- car.

The fast adoption of consumers to MPVs is based on their perceptions that MPVs have a number of advantages over sedans. The larger passenger capacity with similar-to-sedan comfort is a strong point.

Features that used to be the monopoly of sedans are now incorporated into most MPVs. Thus, even the sensitive area -- owner prestige -- is now well taken care of. Owners of MPVs, with an enhanced performance and look, do not suffer an inferiority complex.

While MPV consumers may rejoice at the wide range of brands available, MPV makers face tougher competition all the time. Kijang, for example, used to be the only choice in the market. Though quantity-wise it is still dominant, each of its models has a strong rival. Honda Stream and Trajet G8, for example, are fighting it out with Kijang Krista. Kijang LGX and SGX are facing pressure from the Carens, Aerio and Matrix. The Kijang SX and LX are feeling the heat from GM's Aveo and Hyundai's Getz. A small- sized MPV, Karimun, used to enjoy a prominent place in the market -- but not now.

With the entry of Avanza and Xenia, every MPV manufacturer has no other option but to adjust their price. Some have slashed prices by 10 percent and one or two companies have reduced them even more.

For products like MPVs, which have a high level of consumer acceptance and are at a mature marketing stage -- close to the late majority level, it is only natural that competition is fierce. And it's customer-oriented strategies that will win the day. Customer satisfaction leads to brand loyalty and repeat sales, which in turn leads to long-term profits. To attract late majority consumers most companies are defending their market share with customer-oriented marketing strategies. In the long run, both sides end up as winners: the marketers and consumers.

-- The writer is Prasetya Mulya Business School's Marketing faculty chairman.