COMMONWEALTH JOURNAL OF COMMERCE & MANAGEMENT RESEARCH THE FACTORS INFLUENCING THE PURCHASE DECISION FOR SMALL CARS IN NAVI MUMBAI INDIA

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1 THE FACTORS INFLUENCING THE PURCHASE DECISION FOR SMALL CARS IN NAVI MUMBAI INDIA Eklavya Attar Student (PGDM), Prin. L N Welingkar Institute of Management Development and Research, Mumbai Dr Kavita K M Professor Operations, Prin. L N Welingkar Institute of Management Development and Research, Mumbai ABSTRACT A small car is also termed as compact family car or hatchback car segment, this particular car segment is smaller than the sedan car segment. The car market in India is rising day by day with the different kinds of models, including hatchbacks, sub compact, sedans, large cars, utility vehicles and others due to changing customer perceptions towards purchasing the four wheelers. Based on the reports, the hatchback segment contributes 52 percent of market share in the total sales of cars in the month of March 2016 as shown in the Chart - 1. This paper is based on an empirical research conducted to study and interpret the consumer buying behavior while purchasing small cars by identifying the preferences assigned to various attributes. The research used primary data collected from a questionnaire survey and an advanced multivariate statistical technique Factor analysis.. KEY WORDS: Purchase Influencers, Small Car/Hatchback market share, Consumer buying behavior, Demonetization, Indian automobile market, Advanced Multivariate Statistical technique, Sub compact car, Factor Analysis. 28

2 LITERATURE REVIEW 1. Small Car Market segment in India a) b) In recent years, India has emerged as a leading centre for the manufacture of small cars. About 70% of the annual car production in India is Hatchback which is approximately one million units. [1] c) Companies like Tata Motors, Maruti Udyog along with the foreign companies are fiercely competing to out-do each other in terms of design, innovation, pricing, and technology, so as to gain control of the small car market in India. d) As a result of government intervention to minimize the excise duty & other related taxes it is estimated that the hatchback market is going to move beyond the 3.5 million units mark since smaller petrol(smaller than 1.2 litres) & diesel engines(smaller than 1500cc) will increase fuel efficiency & also reduce the pollution. [1] 2. Global effect of Indian small car segment [1] a) Suzuki, which is the leader in the Indian hatchback segment has decided to partner with Nissan to come up with a new mini car model in India also it has plans to invest about 650 million US$ for research & development work in its Manesar plant. b) Hyundai Motors to spend around 700 million US$ for research work in India. c) Volkswagen to invest around 540 million US$ and manufacture nearly 1,00,000 mini cars on an annual basis. d) General motors has increased its yearly production in India to 1,40,000 vehicles and Honda has also decided to increase its manufacturing capacity in India to 1,00, Reasons for growth in the small car segment in India a) Aspirational Lifestyle - There is a decrease in the age for owning a hatchback in recent years. b) Affordability and utilitarian Hatchbacks are comparatively cheaper than sedans, Maruti- Alto & Wagon R the two top selling cars in the Hatchback segment are preferred mainly by middle classes. They are also convenient to use in Indian roads and especially for parking. 29

3 c) Development of tier 2 & tier 3 cities. Hence we can say that Hatchback segment is the prominent segment in the Indian car market and is attracting players from other parts of the country. Strategies concentrating on price will be one of the critical factors since there are too many competitors or companies need to focus on new innovations in the small car segment in India. 4. Market share in terms of car sales as in March 2016 MUV 13% Sales SUV 14% Hatchback 52% Sedans 21% Hatchback Sedans SUV MUV Chart -1 [2]. PURCHASE INFLUENCERS 1. Price Price is a very critical factor in a country like India across all the age groups interested in buying the Hatchback. Sometimes, government policies also affect the price as in a case of Hatchback segment, they are made cheaper as discussed in above points 30

4 2. Fuel Efficiency In terms of fuel efficiency Hatchback are considered to be most fuel efficient. [3] 3. Offers/Promotions Offers & Promotions because in India there are many festivals and most of them are considered to be auspicious thereby giving great opportunity to the car manufacturers to boost their sales. 4. Luggage Capacity & 5. Seating Space Luggage capacity & seating space will help to know if there in any scope for improvement in the existing design for luggage capacity & seating space in hatchback. 6. Power Steering Power steering for better handling capacity ensuring smooth performance and safety 7. Small Car 8. Brand DECISION PROBLEM Our decision problem is to study the major factors or attributes influencing the consumer buying behavior while purchasing a small car by identifying the importance assigned to various attributes (features) while selecting a car. This was carried out by factor analysis to identify the major attributes OBJECTIVES 1. To analyse the buying behaviour of customers while purchasing a small car 2. To find the effect of different parameters like price, fuel efficiency, brand image, etc. on the purchase decisions. 3. To identify features not valued by the customers (insignificant features), if any, which may be eliminated to create more value for money. 4. To find out the most important parameters (purchase drivers) 31

5 5. To carry out factor analysis to identify the salient features that can help to come up with better designs METHODOLOGY For the purpose of identification of factors (attributes) that influence people to buy a car we tried brainstorming ideas. Initially we came up with fifteen to sixteen variables which were later reduced to 8 based on the logical grouping of like factors. DATA COLLECTION Through a quantitative survey (a structured questionnaire intending to get the purchasing insights), we tried to obtain the primary data from both the categories i.e existing and potential buyers of Navi Mumbai and this data was then analysed to answer our decision problem. We aimed to get at least 84 responses after discarding errors that arise due to incomplete responses finally this data was analysed using Factor Analysis to develop a profile of a typical customer s requirements and expectations. DATA CLEANING Initially, we planned to obtain around 108 responses in total for our analysis however; we could manage to get around 84 complete responses. Most of the response that got filtered out was due screener questions or who have answered the questionnaire partially. DATA ANALYSIS USING FACTOR ANALYSIS 1. Factor Analysis is performed on the independent variables to club the highly-correlated variables into a single factor. It operates on the notion that measurable and observable variables can be reduced to fewer variables that share a common variance and are unobservable, which is known as reducing dimensionality meaning if there are factors with some correlation you can use factor analysis to reduce the number of factors. 32

6 2. For this project, factor analysis is done using SPSS software. Number of variables influencing the purchasing decision of the buyer in buying small car is 8. Variables used: 1. Price 2. Fuel Efficiency 3. Offers/Promotions 4. Luggage Capacity 5. Seating Space 6. Power Steering 7. Small Car 8. Brand 3. Varimax Rotation is used to increase the loading strength of the variables on the factor. 4. Interpreting output using SPSS For the interpretation of Factor Analysis using SPSS, the following 3 output readings are used a. KMO & Barlett s Test It helps in testing the validity of the factor analysis. Observations: We can see that the KMO measure of this test is which is greater than 0.6 The significant value of the test is also less than

7 Conclusion: Hence the factor analysis is valid and the results are as shown in Rotated component matrix table. b. Total Variance explained It helps in determining the effective number of factors Observations: We can see that the total variation explained by the three factors is % which is > 50% Eigen value for all the three factors is greater than 1. Conclusion: We have three effective factors based on the Factor Analysis, meaning from the factor analysis, all the 8 attributes are grouped into 3 salient factors which together explain a total variance of almost 65%. 34

8 c. Scree Plot We can see that there are three components with Eigen value greater than 1. d. Rotated component matrix It helps to determine the effective factors out of the total variables considered 35

9 Naming all the three factors 1. Factor 1: a. It can be seen from the above matrix that Luggage Capacity & Seating Space have loadings & respectively. b. This suggest that factor 1 is a combination of these two variables. c. Hence factor 1 can be named as Spaciousness. 2. Factor 2: a. It can be seen from the above matrix that Price & Brand have loadings & respectively. This highlights a scenario where people are keen on price rather than Brand. b. This suggest that factor 2 is a combination of these two variables. c. Hence factor 2 can be named as Economical. 3. Factor 3: a. It can be seen from the above matrix that Small car has loading b. This suggest that factor 3 is just a variable. c. Hence factor 3 can be named as Small Car. Therefore we have completed the interpretation of the three factors with the help of factor loadings. DEMONETIZATION IMPACT ON SMALL CARS According to the Society of Indian Automobile Manufacturers (SIAM), they considered demonetization to be a temporary disruption in an otherwise healthy industry. Talking about its impact in some cases it might have dented a few hopes for some of the companies however there were players in the same industry that showed a positive response because of the popularity of the small car segment in India. Below are the after effects of Demonetization on some of the companies. 36

10 1. Maruti Suzuki Hatchback segment such as the Wagon R & the Alto saw a decline of 15% year on year. 2. Nissan India There was not much of effect of demonetisation since Nissan & Datsun together achieved an impressive 50% growth rate mainly because of the Datsun redi-go model. Arun Malhotra, the Managing Director, Nissan Motor India, said that they were able to achieve a growth of 21% year on year because of the success of Datsun redi-go & customer response to the redi-go SPORT. 3. Renault India It registered a growth of 9.2% mainly because of the Kwid 4. Volkswagen It showed a growth of 68% year on year and the contributor to this massive growth was sub compact car Ameo. The Ameo comes under the Make in India scheme. CONCLUSION 1. From the factor analysis, all the 8 attributes are grouped into 3 salient factors namely Spaciousness, Economical & Small Car which together explain a total variance of almost 65%. 2. For any car maker whether domestic or international the Hatchback car segment is an important segment to focus on from Indian market perspective 3. Based on the data collected and the analysis done on the data we can say that the samples belonging to Navi Mumbai are interested to have a subcompact car i.e. car segment that lies between an Hatchback and a Sedan. 37

11 REFERENCES 1. A. (2015, April 24). Small Car Market in India. Retrieved from Hirani, R. (2014, October 10). Different segments in Indian auto industry. Retrieved from 2. A. (Ed.). (n.d.). HATCHBACK SEGMENT CONTRIBUTES 52% MARKET SHARE 3. Chopra, S. (2016, December 9). 8 Best Mileage Cars in India. Retrieved from 4. R. (2017, January 2). December 2016 Sales Figures Show Demonetisation Impact On The Auto Industry. Retrieved February 16, 2017, from IN MARCH Retrieved from