Volvo India

Case written by Shivram Apte as part of instruction material developed for teaching at a class in Business Schools. Case facts and decisions are not intended to be a demonstrator of correct or incorrect handling of management situations. They are for discussion only.

Volvo the Swedish Automobile manufacturer has launched luxury buses in India. The move has surprised analysts who are wondering about the salability of a 45 lakh Rupee bus. The bus is built on the B7R platform. Equipped with an inter-cooled turbocharged engine capable of developing close to 300-brake horsepower, it is easily the fastest and the most powerful bus on Indian roads. Analysts have been skeptical of the ability of a bus costing 45 Lakh rupees to compete with 15 Lakh rupee products from the Indian stables. Apart from the financials, the Volvo appears to be more suited for the Autobahns rather than Indian roads. However, after the National Highways Authority of India upgrades the "Golden Quadrilateral" connecting the four metros to a four-lane system by end of 2003, the average speed for intercity travel is expected to increase substantially. More importantly, the standard deviation on travel times between two cities is expected to drop significantly.

It is on this system of National highways that Volvo is banking on.

Further, Volvo has stated that speed and power are not the primary advantages that the bus offers. It is reliability that they are selling. The service interval for the Volvo is 60,000 km as against 10,000 km for other Indian buses. Even though fuel economy at lower speeds is 3 kmpl against 4 kmpl for Indian competitors, it remains constant as speeds cross the 80 km/h mark all the way up to 128 km/h. Competing buses start to consume fuel rapidly above 80 km/h and deliver only 2.8 kmpl above 100km/h. Another advantage is the far higher level of comfort that the Volvo offers not only its passengers but also its drivers with power steering and air-conditioning that help reduce driver fatigue and reduce rest-breaks thus increasing "on-road" time. Also, the Volvos seating capacity in a 2 + 2 configuration is 48 as against 36 passengers for a regular bus. The bus has found favour among transport operators for their long distance runs between cities such as Bombay and Bangalore (1064 km). They charge a 30% premium on the standard fare of Rs 700 between Bangalore and Bombay on the Volvo. Further, they state that the bus can make 4 extra round trips between the two cities every month on account of its higher speed. While production capacity was limited, total sales of less than 1000 were okay. Now, with production capacity ramping up, Volvo needs to think about how to convince customers of the advantage of buying a Volvo. Skeptics however are wondering if a 30% incremental value can be sufficient to sustain sales of a product that costs 200% more than the competition. Volvo needs to evaluate its product and marketing strategy for India for the year. How can it convince buyers of the value offered?

Objective/problems: Convincing bus operators of ROI Salability of 45 lak buses in Indian mkts Competitors have wider after sales network ALTERNATIVES Launch their own transport service Lower downtime Shorter distance more trips More profits Brand positioning Customization of buses USE SPREADSHEETS FOR CALCULATION/JUSTIFICATION Financing opportunities/schemes/ EMIs for operators