Volvo's first-mover advantage

Last Updated: Mon, Dec 10, 2012 03:52 hrs

pLast month Volvo AB Chief Executive Olof Pearson announced an investment of Rs 2000 crore for its bus division in India Pearson had enough reasons to be pleased with his top team in the countryppFor there isn&rsquot any doubt that Volvo has capitalised well on its early mover advantage in the luxury bus segment in India with a dominant 74 per cent share The sales volumes have been modest &mdash 5000 in 11 years &mdash which is expected in a country that is just about waking up to super-luxury travel by road But the pace of change in the Indian traveller&rsquos mindset is picking up as is evident from the fact that the railways had to stop the Shatabdi service between Mumbai and Pune for a while because of the growing popularity of the Volvo bus service on the expressway linking the two citiesppThat&rsquos quite a distance from the advice Volvo had got from an agency it had appointed 11 years ago to ascertain the market potential for low-floor air-conditioned bus service in India The agency&rsquos findings Volvo will be able to sell only two buses a year for quite a few years to comeppThe reason was simple the cost of the buses was five times more than what was being offered by domestic players such as Tata Motors and Ashok Leyland at that time The initial experience was exactly in sync with what the agency had predicted in fact Volvo&rsquos salespersons could not continue with a sales pitch for more than five minutes Apart from the price the other stumbling block was the question &ldquoWhere are the repair shops that can support these buses&rdquoppVolvo has been able to answer that question since then so much so that the brand has in many ways become synonymous with luxury bus travel in India But Akash Passey senior VP of Volvo Bus Corporation is restrained in his response &ldquoYes we have had a successful journey so far but we are in no way sleeping on our success&rdquoppThe reason why Passey and his team would have to be wide awake is the competition it is now facing from global rival Mercedes Benz which operates in the same price segment of Rs 70 lakh to Rs 1 crore per bus In fact the Bihar government last year started a luxury bus service in public-private partnership with Hyderabad based Gireesh Infrastructure which ordered 92 buses a majority of which were Mercedez Benz products &ldquoWe left the choice of buses on the operator which preferred Mercedez buses&rdquo says Uday Singh Kumawat managing director Bihar State Road Transport CorporationppEven domestic players such as Tata Motors are gearing up with new product lines to catch up on the lost market Tata which did not have a presence in the fully-built luxury bus market has made its intention clear with the launch of Tata DivoppPassey is however unfazed by competition and says &ldquoWe are on the right track to create value for the operator and provide complete solution&rdquo His confidence stems from the hard work put in by the company in a market where luxury bus was earlier synonymous with those with push-back seats ppThe company first failed in its attempt to sell its city bus B10LE after demonstrating it to key stake holders It in fact bid for a tender called by Delhi Transport Corporation in 1998 but did not succeed after the tedious process Volvo then realised that it was easier to change the perception of its customers in the inter-city segment where private operators were involvedppVolvo took the value-selling approach by actually demonstrating to the operators their financial gain even if they buy a highly-priced product Its buses could run longer in a day without breakdowns could carry 10 per cent more number of passengers per trip and could offer comfort and service for which customers would be willing to pay ppThe beginning was modest &ndash Volvo sold two units of its inter-city bus B7R in Bangalore in October 2001 Unlike other existing players such as Tata Motors and Ashok Leyland it did not sell just the chassis but the complete bus with the body It provided all services including after-sales support parts and even driver training under one roof More than developing a dealership sales channel it solely depended on corporate sales ppThe Bangalore-Kochi route became one of the first examples of the change Before the entry of Volvo this route accounted for 20 luxury buses &mdash all non AC By 2004 this grew to 40 Volvo luxury buses ppThe inter-city business also picked up Volvo debuted in the segment after it sold 25 buses to the Bangalore Municipal Transport Corporation &mdash six years after it was first demonstrated Today the city has 570 air conditioned buses from Volvo besides 50 from Corona and 90 from Tata Marcopolo The fares for the luxury buses is two and a half times more than the normal buses &ldquoThe initial three to four years were a struggle&rdquo admits Anjum Parwez managing director BMTC &ldquoBut eventually it became a huge success with upper middle class travellers&rdquo ppThe Karnataka State Road Transport Corporation KSRTC currently has over 500 Volvo buses &ldquoVolvo continues to enhance customer experience hence customers are willing to pay for the same&rdquo says N Manjunatha Prasad managing director KSRTC which recently included 145 metre long multi-axle Volvo buses in its fleet that has chemical toilet and pantryppWilfried Aulbur managing partner Roland Berger Strategy Consultants India says companies are now expected to lower prices to expand the marketppThe point about pricing could be the next food for thought for Volvo in Indiap

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