Proton’s strategyPOSTED BY Amirul Hazmi ON 22 April 2016
By: C H Lim
I note with concern the government’s injection of RM1.5 billion into Proton to pay Proton’s suppliers.
When Proton started they had a good marketing plan and strategy with Gurcharan at the helm. I do wonder after so many years whether Proton has a knowledgeable marketing team.
I am been teaching marketing at a prominent college for more than 10 years and in the discussions with students and their attempt to analyse Proton as part of their coursework I note with trepidation some of the factors affecting Proton’s marketing plan and strategy that students have identified in their research.
The motorcar industry is a hyper-competitive industry with many brands thus car companies need good marketing plans to survive. Some of the key factors are as follows:
Product Life Cycle:
The product design cycle is short – between 3 to 5 years. This is due to designs being stale after a few years. Car brands renew their design for a brand/model every 3 to 5 years. Even Perodua follow this cycle – Myvi as an example. Honda, Toyota and almost all brands adopt this cycle. Proton does not as can be seen by the aging designs of their various brands/models. This factor is related to the next critical factor in the car industry.
It is a known fact that car companies need to sell around 200,000 cars for each brand/model to breakeven and should be realised in the shortest possible time due to the product life cycle.
For engines car companies need volumes of around 400,000 units to breakeven on an en-
gine design as technology changes at a very fast pace and needs to follow the specifica-
tions requirements of each global region/country. This should be achieved in the shortest possible time. Take Peugeot as example – across the brands/models from the 3 series to the 5 series, the company use 1 engine type with different levels of tuning so that the breakeven on the design cost can be achieve in the shortest possible time. Other car companies follow this strategy as closely as possible like Toyota that uses the 1.5 litre engine for the Vios, Avanza, etc. The same applies for Honda in the City, Jazz, etc.
Has Proton adopted this strategy? The answer is NO. Tracking the monthly sales volume it can be concluded that most of the brands/models do not attain the breakeven volumes for both the brands/models and engines (the Campro engine). Perodua licence their engine technology from Daihatsu and hence only pay loyalty and does not incur design cost. Perodua also share platforms with Daihatsu models and only do re-design on the body and save research & development costs. It has been published that even using the Daihatsu platform, the design cost of the Myvi was RM300 million.
So has Proton achieved breakeven volumes for the various brands/models?
In this hyper-competitive industry players need to create market niche for themselves. Each major player need to identify their competitive advantage and leverage on it for profitability and sustainability.
Perodua has kept itself in the Category A and B of the market segment and carve out their market shares. Perodua merge two brands – Kancil and Kelisa into one – Viva, dropped the Kembara (SUV) segment and upped the specifications of the Kenari to focus on the Alza. Now Perodua only manages the Axia, Myvi and Alza – 3 segments of the industry – and making money as the brand/models have exceeded the breakeven volumes required.
Proton is trying to have the cake and eat it too by having brands/models in the B, C, and D segment of the market. Not only that; Proton have more than one brand/model in each of the segments (see Cannibalisation).
In the beginning, Proton had the Saga in the B segment and therefore a more focused marketing strategy and enable Proton to attain a 70% market share. This is the niche marketing strategy and Saga remains a successful model for Proton and is the only brand/model that has achieved breakeven sales volume.
Change in strategy to expand into the C and D segments and the parting of relationship with EON have resulted in the downward market share trend for Proton.
In marketing, cannibalisation is a major pitfall in any marketing strategy. Here there is a differentiation between variants and brand/models. A brand/model can have variants which are the same car brand with different specifications, fittings and accessories like the Toyota Vios J, E, G and TRD.
This has a major impact on sales and market share for it gives too many choices to the prospects while the prospect is able to buy only one car. Ford in the beginning has the tagline – “You can have a Model T in any colour so long as it is black” made Ford successful competing with General Motors holds true as in the beginning Proton has only the Saga to sell.
Later Proton introduced the Wira and was still successful but when the Waja was introduced the Wira was not withdrawn thus starting the process of cannibalisation of market share between brands. With the introduction of the Gen 2 and not withdrawing the Wira compounded further the problem. Then Proton introduced the Persona to compete with their existing brands further confusing the market as these brands are in the same market segment – B and C segments depending on how you look at it. Then you have the Satria, Savvy, Suprima and Iriz. Now Proton has its market share hovering at around 15%. How many sub-segments can you further cut out? The price difference is not very wide.
How many of these brands have achieved breakeven volumes?
If breakeven volumes are not achieved you cannot have economies of scale both for the company and its suppliers as the number of parts required expand exponentially.
Branding and Brand Names:
Proton should have a broader and longer vision. When it was conceived, it should have considered that the project is not import substitution but in the longer term export oriented as the Malaysian market size at the start was around 18 million and the neighbour Indonesia and Thailand is many times bigger than Malaysia.
Developing and establishing a brand name is an expensive long term investment and therefore longer planning horizons should be considered. Toyota has maintained the Corolla up unti present while Honda has maintained the successful brand Civic.
Saga for Proton can be considered a successful brand name locally as it the saga seed is a red hard seed of the Saga tree – tough and durable. While saga in other countries – Britain, Europe means a tale or episode and is close to the popular language used for branding – Latin, Italian. The name was chosen as publish in the news to reflect the initial vision of Proton to expand into the export markets.
Look at the subsequent brands chosen – Wira, Waja, Juara, Tiara, etc. The Wira and Waja has to be rebranded for the export market. Examine the change starting from Gen-2, Persona, Inspira, Exora, Iriz, Suprima, etc. These brand names are more attuned to the branding conventions used by the major car manufacturers.
Now that Proton will be undergoing a rationalisation process under Datuk Seri Idris Jala, Proton should reconsider their marketing and manufacturing strategy:
- Rationalisation of brands to reduce cannibalisation (Just like MAB – getting rid of unprofitable brands);
- Focus on niche segments;
- Focus to achieve breakeven on the smaller number of brands at the shortest possible time;
- Have a technology partner for technology transfer and platform sharing;
- Focus on quality especially the After Sales Service quality;
- Work with technology partner for the export market; and,
- Do sub-contract work to increase capacity utilisation from the current 35%.