International Journal of Management and Social Sciences Research (IJMSSR)
Volume 2, No. 1, January 2013
PEST Analysis for Indian Luxurious Car Market
Ramita Verma, MBA, M.Phil (Mgmt.), PhD, Asst. Professor, Swift Group of Colleges, Patiala (Punjab), India
Shubhkamna Rathore, MBA, Phd, Asst. Professor, Swift Group of Colleges, Patiala (Punjab), India
ABSTRACT
In India’s auto market the luxury cars are the fastest
growing segment. In India Luxury car market grown at an
accelerated pace in the past couple of years. Researches
and studies have revealed that the luxury car market is
growing at a steady speed of 25% per annum with more
and more numbers of luxury cars entering Indian car
market. India is one of the fastest growing economies of
the World. With the consistent growth rate of 8-9 % for the
last five years the disposable income of Indians has been
growing in an impressive manner. Besides, the growth of
HNI community in India is crossing mark of 25%, the
highest in the World. Because of these factors the Luxury
market of the World, which was centered around Europe,
USA, Japan, China, and Korea, so far, has started shifting
its focus on India. Besides, traditionally, India has always
been known for her royalty. In this zest for Luxurious
Lifestyle, both east and west find this as an opportune time
to make India as a hub for the Luxury market of the World.
Moreover, it is not only the luxury brands that are
creating a benchmark in the Indian industry but also the
affluent class people who are keen to splash cash for the
cachet of exclusive cars. The impact of India's initiatives
on economic liberalization and globalization (post 1991)
was most apparent in the automotive sector. Moreover, the
new age Indian was becoming more comfortable with his
riches and flagrant display of wealth, which ushered in
opportunities for global luxury carmakers in India.
Analysts estimate that the luxury car segment would be
growing at a rate of 28% annually. More than 7,000
luxury cars were sold in India every year and nearly 20
global luxury brands were competing for the market share.
The Indian luxury car market has tripled its size in the
past five years. It is expected to grow at the same pace for
2-3 years.
This paper highlights the Pest analysis of Indian Luxury
Car Market and to discuss the competitive scenario and
the future of the luxury car market in India.
Keywords: PEST analysis , HNI’s , luxury car segment
INTRODUCTION
India being one of the lucrative hubs for the car market
which attracts auto majors from all over the world. The
recent growth in the luxury car market in India is much
more than mere market dynamics in a particular car
segment. It is a reflection of the changing lifestyle of the
i-Xplore International Research Journal Consortium
ISSN: 2319-4421 22
affluent class in the country. The Indian luxury car market
accounts an impressive compound annual growth rate of
approximately 25% between 2005 and 2009, though the
base still remains quite low, representing around 1% of the
total new car market. This expansion can be attributed to
high economic growth which led to increased disposable
income, finance-friendly government policies such as the
relaxation of equity regulations and the reduction of
import tariffs pertaining to the automobile industry. The
economy was growing at 7% per annum and the
information technology revolution in India had created a
sizable professional class with huge purchasing power.
REVIEW OF LITERATURE
Marketers need to respect the fact that people and society
can change over time. In the early 1980s, consumer
consumption is somewhat ‘conspicuous’. Many firms
ignored consumer input or publicly confront consumer
group (Evans and Berman, 1987).
In the 1990s, it is the era of ‘value driven’ customers and
suppliers. The consumption can nolonger be conspicuous.
Consumers are exposed to more mass media. Commercial
media become sources of useful information on the ever
increasing number of products and brands. Personal
sources of information diminish in importance. Marketers
today need to understand that ‘customer satisfaction is
about ‘attitude’; and customer value is about ‘behavior’’
(Butz and Goodstein, 1996:64).
Goodyear (1996) suggests in the second stage (brand as
reference) of her evolution of brand concepts and images3
that the marketers need the identification and
differentiation of their products to reflect the consumer’s
goal of making a good selection from among competing
brands. Since there exist differences in attitudes and
specificity, what is a luxury car to some groups may be
‘ordinary’ to others.
Segmenting the luxury cars into physical categories
regardless of ‘brand association (attributes, benefits,
attitudes)’ (Keller, 1993) can be very difficult to refer to in
luxury sense. This requires marketers to identify brands to
distinguish between them (Hoyer and Brown, 1990).
While many brands seem to be qualified as luxury brands
(e.g., Audi, Bentley, BMW, Jaguar, Lexus, Mercedes,
Porsche, Rolls-Royce) by one third of industrial opinion,
only some major brands (e.g., Audi, BMW, Mercedes,
www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 23
Volume 2, No. 1, January 2013

Rolls-Royce) are considered luxury brands by the public

majority.

According to the Report of World Wealth by Capgemini

and Merrill Lynch Wealth Management, most countries in
the world have increased their HNI (High Net-Worth
Individuals) count. While, India has more than doubled it
– maximum compared to any other country in the world.
In 08-09, India had 84,000 HNI’s which grew by 50.9% to
take to the number to 1, 26,700 HNI Indians! in 2010.

Indian HNI growth (past 5 years)

Year of Asia-
India World
report Pacific
Source: Raygain Technologies Pvt. Ltd.
2005 70,000 2.3 mn 8.3 mn
In India, the luxury car segment (Average Price 25-30
2006 83,000 2.4 mn 8.7 mn Lakh) has been growing at an average rate of 20% or
above during recent years; it seems to be least affected by
2007 1,00,015 2.6 mn 9.5 mn the global financial crisis . According to the Society of
Indian Automobile Manufacturers (SIAM) during worst
2008 1,23,000 2.8 mn 10.1 mn
recession period when world was facing low market
2009 84,000 2.4 mn 8.6 mn demand trends, Indian luxury car segment grew at 23% to
6,671 vehicles. But financial year ended March 2010 has
2010 1,26,700 3 mn 10 mn shown growth of automotive sector up by 25% to 15.26
lakh vehicles.
Source: Capgemini, Merrill Lynch Wealth Management

The key factors contributing to the growth of luxury car Major Luxury car in India
market are raising economy and IT boom. Rising economy Mercedes-Benz, BMW and Audi put together have around
has given way to more disposable income which people 85% market share. The German car brand Mercedes-Benz
are splashing over luxurious and high-end cars. With the had first-mover advantage as it had started operations in
boom in IT industry, youngsters are earning higher India in 1995 and there was no direct competition in this
packages which enable them to enjoy a joyful ride in their category.
favourite luxury car. Apart from that easy availability of
loan and good finance schemes have also pushed
youngsters and middle class people towards expensive and
luxurious cars. Even the Government of India is
supporting the entry of luxury cars by formulating policies
such as the relaxation of equity regulations and the
reduction of import tariffs on automobiles .
These policies have reduced the price tags of top notch
luxury cars, which have eventually led to the growth of
luxury car market in India.

Growth of Luxury Car Sales in India

But the competition in the luxury car market will increase

in next few years as more new players enter in to the
market.
2009
BMW 3,619
Mercedes-Benz 3,208
Audi 1,658

i-Xplore International Research Journal Consortium www.irjcjournals.org

International Journal of Management and Social Sciences Research (IJMSSR)
Volume 2, No. 1, January 2013
2010 (January & February)
Mercedes-Benz 842
BMW 709
Audi 558
Luxury car segment is going to change as there are many
new cars lined-up for launch during the period 2010-2012
with approximately 50 to 60 new models from major
global brands. Tata Jaguar, Lexus, Bentley and Fiat are
some of the players who would be seen as aggressive
entrants with their high market experience. The market
future will not only be driven by product itself but also
services associated with it.
While Mercedes-Benz, which has been in the Indian
market since 1995, sold 3,208 cars in 2009, BMW, which
came 11 years later, sold 3,619. BMW’s market share rose
from 9 per cent in 2006 to 33 per cent in 2007, to 40 per
cent in 2008, and to 42 per cent in 2009. Audi, the third of
the German trio, which started operations in India in 2006,
has had a 58 per cent growth. It sold 1,658 cars in 2009
and accounts for around 20 per cent of the market.
Mercedes-Benz has been on the slow lane for more than a
year. Its market share dipped from 59 per cent in 2007 to
46 per cent in 2008, and to 38 per cent in 2009. But Merc,
which still enjoys an unmatched reputation in the country,
is stepping on the accelerator. In the first two months of
2010 it outsold BMW—439 cars in January and 403 in
February against BMW’s 368 and 341.
IN THIS DYNAMIC FASHION
PREFERENCES SHIFT FOR LUXURY
CARS BECAUSE OF FOLLOWING
REASONS
 With the Increasingly affluent population with
high disposable incomes and an extravagant lifestyle of
people.
 The growth of the economy is 8.8% this year
compared to just 6.7% last year with this growth the
confidence of the customer confidence is also increased.
 The target customer who used to over 45 (top
level executives) earlier has changed to mid 30s
(entrepreneurs and those have reached success at a young
age)
 Today’s generation believes in the Phrase “Got
it? Flaunt it!” and many more new reasons to buy the
luxuries cars such as gifts to daughter at marriage ,
festivities and also of flaunting one’s wealth.
 Upgradation to higher end models because the
prices fall after a very small period of time.
 Increasing demand from the rural areas which is
in keeping pace with the economic growth and
development
i-Xplore International Research Journal Consortium
ISSN: 2319-4421 24
CONSUMER BEHAVIOUR OF LUXURY
AUTOMOBILES’ CUSTOMERS
On the demand side, their customers are now far more
knowledgeable and marketing literate. Brands are now
perceived as part of their life, a representative of needs and
wants in customer constellation . Most current owners of
luxury cars tend to have purchased a car previously, the
customer has potentially developed an attitude toward it.
Here, an attitude becomes an evaluating judgement (desire
or not desire) based on prior or present experience such as
previous satisfaction from dealers or products and services
(after sales and warranty), driving experience, and socio-
economic status of customers. It is also possible that an
attitude can be developed based on prior information
without experience, as when consumers develop
preferences or biases for or against brands based on the
brands’ images in the marketplace. This also depends
largely on purchasing power of individual customers.
Customers may have a favourable attitude towards some
manufacturers’ luxury cars, but may lack the ability due to
insufficient purchasing power or willingness to take
buying action.
Environmental factors for a company or an industry refer
to variables and conditions around that company and
industry that affect its working and performance, but
which cannot be controlled. To understand, analyze and
deal with environmental factors, "PEST" framework that
classifies all environmental factors in the following
groups. Political, Economical , Socio cultural,
Technological,(Physical/Geographic) .
ECONOMIC ENVIRONMENT
The economic environment consists of macro level factors
related to the means of production and distribution of
wealth. Economic environment is very dynamic and
complex in nature. It does not remain the same. It keeps on
changing from time to time with the changes in an
economy like change in Govt. policies, political situation,
buying capacity of the people.
With the growing population of well heeled citizens in
India emerges to be the primary cause. With the overall
population being 1 billion, the 1% people who constitute
the affluent society or the new ’Global Indians’ are
estimated to be over 10 million, mainly because of the
growing disposable income of India. It is a reflection of
the changing lifestyle of the affluent class in the country.
In India, the luxury car segment (Average Price 25-30
Lakh) has been growing at an average rate of 20% or
above during recent years; In effect to this, almost all the
overseas manufacturers including Mercedes, BMW, Audi,
Suzuki, and most recently Volkswagen have entered the
www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR)
Volume 2, No. 1, January 2013
fray. Ferrari’s announcement to roar into the India market
from 2010 and Aston Martin’s aspirations to enter the
Indian market soon next year also signals that the market
has just picked up pace and there are great possibilities for
these indulgent vehicles to thrill the Indians.
Change in attitude of the customer accounts for the sudden
acceleration in the Luxury car Market in India, as the
emphasis has been shifted from price consideration and
affordability to design, quality and pleasure.
KEY MARKET DRIVERS
Increase disposable income ,Rising aspiration level ,Lower
interest rates.
POLITICAL ENVIRONMENT
Political environment consists of factors related to
management of public affairs and their impact on the
business organization. Indian government auto policy
aimed at promoting an integrated, phased and conducive
growth of the Indian automotive industry. Allowing
automatic approval for foreign equity investment up to
100 per cent, with no minimum. Political climate in a
different countries producing an buying automobiles
regarding policies on import, export and manufacture of
automobiles and automobile components. This will also
include policies on allowing setting up of manufacturing
plants by foreign companies.
Stability of governments: This may affect the future
conditions in a country.
Taxation policies: Indian government auto policy aimed
at promoting an integrated, phased and conducive growth
of the Indian automotive industry. Allowing automatic
approval for foreign equity investment up to 100 per cent,
with no minimum.
DEMOGRAPHIC FACTORS
Demographic factor is one of the key social factors. It
affects lifestyle, consumer trends, the type of risk aversive
behaviour, spending power and value per customer. The
change of lifestyles and habits have a direct impact on the
consumer expenditures. Consumer Demand: Now a days,
consumers are very smart in selecting a car. They look for
the best option available in the market. Their demands are
highly efficient, affordable cost, reliable, comfortable and
stylish models cars. Some consumers also consider that the
cars should be environment friendly.
CLASSIFICATION OF CONSUMERS OF
LUXURY BRANDS
i-Xplore International Research Journal Consortium
ISSN: 2319-4421 25
According to a leading research company, the consumer-
population in luxury markets can be divided into three
categories:
Functional- This segment comprises people who buy the
luxury goods for their superior functionality and high
quality. The people in this category decide to buy based on
their logic, rather than emotions. In India, functional
segment consumer-population is highest among the three
segments.
Rewarding- The ‘status- symbol’ is the driving factor for
this segment. The average age for this category is 35
years. People under this category are a major force behind
the increasing sales figures of luxury cars in India.
Indulgence- This category comprises the youngest lot out
of the three categories. Currently, this category is
experiencing highest growth in Delhi and NCR regions.
Technological factors : Technology relating to
automobile designs , technology of automobile
manufacture and Technological developments that may
increase or decrease with use of automobiles. The
company is adapting new technologies and techniques to
make its cars more famous among the customers. It is also
introducing low priced luxury in the market.
Socio Cultural Factors: Lifestyle and preferences of
people, that impact their choice of types of automobiles.
Social norms that impact the decision to own and use
automobiles versus other means of transport
This market growth also presents ample opportunity for
relatively new entrants such as Jaguar, Land Rover, Rolls
Royce, Porsche, Lamborghini, Toyota and Volvo to
increase their market share, and further intensify the
competition.
CONCLUSION
Growing number of young entrepreneurs in India inclined
to drive luxury cars is brining about healthy demand for
such cars. The Indian economy is raising a lot of interest
globally given its statistics of the highest disposable
incomes and increase in the number of millionaires. In a
competitive market like US where most manufacturers
have luxury car variants available, German manufacturer
BMW has come out on top by selling 20,097 units this
November. Japanese manufacturer Toyota Motors’ brand
Lexus, came second with 18,240 units while compatriot
manufacturer, Mercedes Benz came a close third with
18,208 sales.
Lexus still leads the overall sales figures till date for 2010
but are closely followed by BMW and Mercedes Benz.
Lexus sold 201,769 units from Jan-Nov 10 while BMW
and Mercedes Benz sold 196,833 and 196,288 units
www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR)
Volume 2, No. 1, January 2013
respectively for the same period. With its excellent R & D
facilities to back the low cost labour, many multinationals
have set up operations for this purpose. But now
something more revolutionary is happening. India’s top 10
luxury car models dominated by Mercedes Benz, BMW
and Audi have seen a 57% surge in their sales between
June 2009 – May 2010. Audi A6, Mercedez Benz E –
Class and BMW 3 Series models saw more than 100%
growth from last year. Volkswagen had sales of 1,876 cars
from January 2010 – August 2010, an increase of 66% of
the same period last year.
The future of luxury cars in India looks increasingly
bright. It is expected to be the fifth largest automobile
market in the world by 2015.
REFERENCES
[1] Hoyer, W. & Brown, S. (1990), ‘Effects of brand
awareness on choice for a common repeat purchase
product’, Journal of Consumer Research, Vol.17,
No.2.
[2] Iacobucci, D., Henderson, G., Marcati, A. & Chang,
J. (1996), ‘Network analyses of brand switching
behavior’, Journal of Research in Marketing,
Vol.13.
i-Xplore International Research Journal Consortium
ISSN: 2319-4421 26
[3] Marquardt, S. ‘BMW buys Rover; Britain goes
ballistic’, Automotive Industries, March 1994.
[4] Motor Industry and Research Association (1997),
The Emerging Asian Auto Markets 1996, UK:
Hobbs the Printers.
[5] http://www.rushlane.com/bmw-tops-us-luxury-car-
sales-for-november-129558.html
[6] Urban, G. & Hauser, J. (1980), Design and
Marketing of New Products, New Jersey: Prentice-
Hall.
[7] Kassarjian, H. (1971), ‘Personality and Consumer
Behavior: A Review’, Journal of Marketing
Research, November.
[8] Morris, M. & Holman, J. (1988), ‘Source Loyalty in
Organizational Markets: A Dyadic
Perspective’,Journal of Business Research, Vol.16
(March), pp.117-131.
[9] Motor Industry and Research Association (1997),
The Emerging Asian Auto Markets 1996, UK:
Hobbs the Printers, pp.325-333.
[10] Sanyanusin, P. (1994), An Analysis of Demand for
Passenger car in Bangkok . MSc,
[11] Chulalongkorn University, Economics Graduate
School, pp.4-10.
[12] Scheele, N. (1995), ‘The luxury car sector of the
future and Jaguar’s part in it’ in D. Stirley & K.
Read (ed.) MIRA 1946-1996 Golden Jubilee: Fifty
Years of Excellence. Warwickshire: MIRA, p.190
www.irjcjournals.org