Abstract
Iskandar Shah, the outlet manager of WRC Auto Sdn Bhd, was an authorized local car dealer who was facing challenges that he never anticipated throughout his working experience. On March 11, 2011, an earthquake and tsunami occurred in Japan and Perodua’s main supplier, Daihatsu, was affected seriously by this natural disaster. Later on, Perodua, officially, stopped their production temporarily for Viva and Myvi. The car components were not enough to supply to the Malaysian car producers, which caused a shortage of new cars in the country. The manufacturers in Japan had estimated 3 months to recover their business operations. Iskandar knew that sales of Viva and Myvi would drop and he needed to plan other alternatives to sustain the business during the 3 months’ supply shortage. He had to come up with a different strategy while waiting for the supply chain to recover in July 2011.
Discussion Questions
Explain Perodua’s distribution channels and product allocations. Kindly provide examples.
Explain the marketing strategy of Perodua and WRC Auto.
Discuss the marketing mix complied by WRC Auto and Perodua. Kindly suggest how to improve the existing marketing mix strategy.
Perform SWOT (Strengths, Weaknesses, Threats, Opportunities) analysis for WRC Auto Sdn Bhd.
If you were Iskandar Shah, what action would you take to break-even? What other options would you consider?
Use PEST (Political, Economic, Social, Technological) to analyze the macro environment of the automotive industry in Malaysia.
Describe the market segmentation of Perodua in Malaysia.
Based on your reading for the case, do you think Iskandar can help the company to survive and sustain during this crisis?
Oh Tsunami, You Put Me in Trouble
It was a rainy Friday morning. Iskandar Shah was driving to the showroom when he received an email on his Blackberry, coming from the Headquarters of Perodua. It was March 18, 2011. After he heard about the tsunami in the news on the television exactly 1 week ago, he knew that he would be receiving this memo sooner or later. The phone call made it official. Perodua’s main suppliers, Daihatsu, whose factories were located in Japan, were affected by the tsunami and a magnitude-9 earthquake. People were discussing this matter for a week and Perodua finally announced officially that they were temporarily stopping their production for Viva and Myvi. Only Alza could be produced for the time being because all parts were made in Malaysia.
It was a disastrous moment for a few big automotive companies including Perodua in which many of them encountered disruption of the product supply chain. Iskandar was the outlet manager of WRC Auto Sdn Bhd, a Perodua (1S) dealer. Iskandar thought about the two models he had in the stock. Those were the only cars he could sell for 3 months including Alza and it gave him a headache to think that two of the best-selling products could not be produced anymore; not at least within 3 months. He parked his car in front of the showroom and stayed in the car, trying to figure out the best way for him to deliver the news to his salespersons. Deep down in his heart, he was worried that his salespersons would leave the job or much worst, lose their job if the company could not sustain for the next 3 months. They also had families to feed and bills to pay.
Iskandar was among the most reputable sales manager in Perodua and other dealer outlets used to outsource him to boost their company’s sales. Once in 2010, Motor Jasdi had failed to meet its sales target for two consecutive months. Perodua assigned Iskandar to help them improve the sales and luckily with his help they managed to achieve their target in the third month. Ever since then, he was known to be the ‘Game Changer’ among Perodua’s dealers. Many dealers outsourced him when they were in need to increase their sales.
Suddenly his phone rang. It was the big boss, Mr Imran. As expected, he was asked regarding the actions and strategy that he planned to take to earn when there were shortages of products for the next 3 months. As for now, Iskandar’s aim was not to gain profit but just to achieve break-even, so that the company will not incur any loss. Iskandar sighed and whispered to himself:
Throughout my career and years of experience as the outlet manager for WRC Auto Sdn, I never thought that I will face such kind of situation. This one is beyond my control
He wondered if the company could survive for the next 3 months. He already considered changing his marketing and sales strategy such as selling minimum units available in the outlet, selling Perodua spare parts or to provide services such as renewal of road tax and insurance just to achieve break-even for the company. He mumbled:
Will it work? Can we survive during this difficult time? Oh tsunami, you put me in trouble…!
Automotive Industry: The Malaysian Market
Malaysia was located in the ASEAN (Association of Southeast Asian Nations) region with a population that could reach up to thirty million where it offered a huge opportunity for global automotive and component manufacturers to start automobile operation and business in the country. Proton and Perodua contributed significantly to transform the automobile industry in Malaysia from car assembler to car manufacturer. During 2011, Malaysia was ranked highest in terms of car ownership in the ASEAN region where the ratio was 200 cars per 1000 people in the country. International brand competitors such as Mercedes, Audi, BMW, and Honda took this opportunity to gain their market value from the buoyant demand from customers in Malaysia. The increased number of car manufacturers locally and internationally opened the opportunity for international component manufacturers such as Continental, Nippon, and Denso to test their market in the country. Figure 1 shows the production and sales of passenger and commercial vehicles in Malaysia.
In general, Malaysians would consider the price of the vehicle, branding, design, family, and friends’ perception while making a decision about purchasing a car. The choice of car was related to the average income of the group of population. However, individuals who were aged from the late 30s to middle 50s preferred to purchase a vehicle that would provide more perks in terms of performance, comfort, and luxury of the car.
The Government of Malaysia had set a standard for the maximum sulphur emission that car manufacturers in Malaysia had to comply with. Both petrol and diesel consumers for light and heavy vehicles had to comply where the sulphur emission should not exceed 500 ppm (Bathan, 2010). Moreover, any car manufacturer or car assembler could enjoy tax exemption from the government only if all the parts imported were assembled in Malaysia. The legislation set by the government shifted consumer demand from petrol/diesel vehicle to its substitute hybrid cars, since it had more government support and reduced the cost to the consumer based on tax reduction. Somehow, this issue was in favor of both Perodua and Proton.
A Brief Overview of Perodua
Perusahaan Otomobil Kedua Sdn Bhd or Perodua was established in 1993 and started its operations in 1994. During 2011, Perodua became the largest automobile manufacturer in Malaysia. Besides manufacturing cars, Perodua also produced engine component parts for both local and international car makers, which helped build the automotive industry in Malaysia.
UMW Corporation Sdn Bhd was the largest shareholder of Perodua with a 38 percent interest. Other stakeholders were Daihatsu Motor Co. Ltd. (20%), MBM Resources Bhd (20%), PNB Equity Resources Corporation Sdn Bhd (10%), Mitsui & Co. Ltd (7%), and Daihatsu (Malaysia) Sdn Bhd (5%). The sales, marketing, and distribution functions were structured under another Malaysian-owned subsidiary while the manufacturing operations of Perodua were managed by a partnership that includes Daihatsu Motor Co. Ltd. By 2010, Perodua held 34.7 percent at 188,641 units which was the biggest share in the automotive industry for a passenger vehicle. Perodua targeted to sell 4 percent more cars or 195,000 units in 2011 with a market share target of 32 percent. Perodua mainly produced compact cars. Since its establishment, it had introduced its first model in 1994 with Perodua Kancil. A full list of the model by Perodua is given in Table 1.
Perodua’s headquarter was located at a 404-acre, multi-purpose site in Rawang, Selangor. It was where Perodua cars were assembled. Most of the components were supplied by local suppliers. However, the main components such as engine and transmission were manufactured in Japan, by the same supplier company (Daihatsu Motor Co. Ltd) who also produced components for other automotive companies such as Toyota.
Perodua Car Models
Perodua distributed its products through three different channels, namely Perodua Sales Sdn Bhd (PSSB), Daihatsu Motor Malaysia (DMM), and over 100 authorized dealers throughout Malaysia (see Figure 2). PSSB and DMM were solely owned by Perodua, while dealers were mostly owned by different individual companies which acted as Perodua’s car distributors. Its marketing strategies are discussed in Table 2.
Perodua’s Marketing Strategies
Perodua will allocate a certain number of cars with a mixture of model and variants each month to the dealers on credit term meaning that the dealer must pay to Perodua using the company’s fund or the customer’s money; either by cash or bank loan. The allocation is automatically set on an annual basis according to the dealer’s performance. A giant dealer (3S) might have an allocation of 200 units per month, but as for a small dealer (1S) with their average sales per month of 80 units, Perodua will allocate only 70 units to them. They can request the number of unit from Perodua only when they have a buyer waiting. Having a credit life, (refer to Table 3) each car must be sold and delivered to customers within the credit period. If they fail to sell the cars within the credit period, then the following month Perodua will not allocate any cars to them. It is crucial for each dealer to clear all their stock in hand each month, in order for them to be entitled to next month’s allocation. They need to be careful to not hold a car too long. However, managers should have no issue in clearing their stock as they can exchange cars between them and also they can give the cars they have in stock to other dealers, provided that the dealer has a customer or buyer for that car.
Credit Life for Each Model, Perodua
Service Satisfaction Index
Sales and Services Satisfaction Index (SSI) or known as customer satisfaction is a typical term used in marketing. It is a tool to measure the satisfaction of the customer based on the services provided by the company. Usually, a few days after the customer bought a car from an independent dealer, a representative from Perodua will call the customer to ask for feedback regarding their experience during the transaction process from the beginning to the end. This survey is very important for Perodua in monitoring and maintaining as well as improving the quality of their services. In a very competitive market where Perodua has to compete with its competitors such as PROTON, Toyota, Nissan, and even continental car, customer satisfaction gives a major impact on Perodua sales in the market. The projection of the employee performance is also driven by the SSI rating given by the customer. Customer will rate based on how the salesperson is dressed, the way they communicate with the customer and how efficient they provide their services to the customer. Standard practice is that the customer will rate the services from 1 to 10 with 10 being the best. Perodua representative will give ratings from customer feedback based on:
showroom facility, sales initiation, salesperson competency and behavior, dealing process, delivery timing, and delivery process.
All of the above-mentioned parameters will be rated in percentage and Perodua will total up the overall score and performance of each dealer. In order to ensure that all Perodua salespersons comply with the SSI criteria, each quarter Perodua will give out the bonus in terms of monetary incentives to the salesperson as an effective way to encourage them to gain more sales (see Table 5).
Under the authorized dealers’ channel, there were three categories of dealership which were Sales Outlet (1S), Sales and Spare Part Outlet (2S) and Sales, and Service and Spare Part Outlet (3S). Perodua had forty-one branches and 139 sales dealers nationwide to serve its customers. It also had forty-six service branches and 124 service dealers’ outlets throughout Malaysia for customer’s convenience.
In terms of promoting its products, Perodua used to provide banners to the dealers for them to hang at the showroom during certain occasions such as celebrations and special offers. Perodua promoted its brand by public media such as popular Malaysian magazines, newspapers, radio, and press release to market its brand. The company also relied on public relation in order to educate buyers with the necessary information about its product. Customers had the privilege to walk-in to the nearest Perodua dealer to purchase or ask for detail information. The marketing strategies to achieve high sales performance were assigned to the outlet manager as long as it did not clash with Perodua’s rules and regulations.
WRC Auto Sdn Bhd: The Business Model, Products & Services
WRC Auto Sdn Bhd (from now as WRC Auto) was one of the authorized dealers of Perodua which fell under the category of 1S dealer outlet, grouped in Central Region 1 together with another twenty dealers. It was located in Wangsa Maju, nearby Jalan Genting Klang. The showroom occupied the ground floor of the end lot of the shophouse, while the administration office was on the first floor. Perodua’s dealers were different from the branch in the way that branches were directly owned by Perodua, whereas a dealer acted as an independent outlet owned by individuals.
WRC Auto was given by the government to a former badminton player as a token of appreciation for his contribution to the country. WRC Auto reported to Perodua and it ran according to Perodua’s Standard Operation Procedure. WRC Auto used to compete with other famous car brands such as Proton, Toyota, Honda, and Nissan. However, since Perodua cars offered the cheapest price of all the segment B compact cars, it was an advantage for WRC Auto. They also competed with other Perodua dealers within the same region. With an intention to grab the market share within the Klang Valley area, WRC Auto sets its own strategy to gain sales. It was the manager’s responsibility to plan out the marketing strategy.
WRC Auto sold only new Perodua cars. Any trade-in activities were handled by its used car panels and not by WRC Auto itself. There was a rule that each month, WRC Auto must achieve a target of 70 units. On average, WRC Auto sold seventy to eighty cars per month and Myvi was the top-selling model. With the launching of ‘exclusive edition’ in 2009 and ‘limited edition’ in 2010, Myvi cars were selling like hot cakes. Iskandar also optimized the launching of Perodua’s first MPV, which was Alza to attract young families to buy an MPV within their budget. The introduction of new attractive colors like orange and apple-green did help in boosting the sales of Perodua’s cars. Other than cars, salespersons could advise the customers to upgrade their cars with ‘body kit’, as this also contributed to generating income for WRC Auto. Besides, just like other car dealers, WRC Auto provided renewal of road tax and insurance services. Existing customers could just come and renew their road tax at WRC Auto. Their income would be about 10 percent of the total price.
It was mandatory that all Perodua dealers must follow the marketing campaign set by Perodua nationwide. Perodua would come up with promotion on certain occasions such as celebrations and special offers. During this time, each dealer outlet was provided the same campaign banner to attract customers. Usually, for dealers, there were two ways they could earn sales which were through the salesperson or through brokers. However, as for WRC Auto, they did not have any brokers as they were known in Klang Valley to be the dealer paying the lowest commission and it was quite normal for brokers to target high commission dealers. Being a small company, WRC Auto had sufficient fund for sales but a minimum fund to roll the business. Most of the time, WRC Auto had to wait for the banks to disburse the loan first before they could pay to Perodua. This was actually slowing down the buying and selling process. Iskandar had thought about this before, wanting to ask the directors to put in additional funds for the company so the business could run smoothly. He even planned to ask them to revise the commission scheme for the salesperson; however, it was not up to him to decide. However, he encouraged his salespersons to increase their sales and achieve good SSI 1 for additional income (Table 4).
Incentive Scheme for SSI bonus, Perodua
WRC Auto’s overhead cost consisted of the showroom and office rental of RM 2 13,000. Another RM 10,000 was allocated for salary for the manager and administration officers. The stockyard where they kept their cars was also rented for RM 3,000 per month. Other utilities such as electricity and water were about RM 2,000 monthly. Marginal revenue per unit for Viva and Myvi was RM 2,000 and Alza RM 3,000. The ratio for the salesperson’s share to the company’s share was 1:3. The example of revenue calculation is shown in Table 5 (assume the salesperson sells 1 unit for each variant that month).
Example of Calculation for Salesperson A
Iskandar, the Manager of WRC Auto
Iskandar was 38 years old and was serving as the outlet manager for WRC Auto since 2009. He was a businessman with experience in the sales line for over 20 years. However, it was his first experience in the automotive industry. Previously he was involved in construction and labor-related works. However, since he became the manager for WRC Auto, the dealer’s performance, as well as their SSI scores, increased. Iskandar worked too hard to build the image of WRC Auto and was known among the Perodua dealers in central region-1 as one of the top managers. One of his colleagues who was also a dealer once commented:
Iskandar, it is difficult to beat you in this business. You are damn good at it.
Ever since Iskandar held the outlet manager position for WRC Auto, each year WRC Auto had won the Sales Satisfaction Index (SSI) Award and scored highest among all the dealers in the region, even higher than Perodua’s direct distributors. He believed that, for a company to be successful, the most important key was the quality of the services that they provide. He is reliable in the power of word-of-mouth. The walk-in customers entered the showroom searching for the dealer who could give the highest discount or the cheapest price. The moment customers stepped into the showroom, they were treated respectfully, and their mindset could be changed from putting the price as their priority to service as being number one. Iskandar instructed his salespersons to offer a cup of coffee or tea to customers if they were there for more than five minutes; searching for information.
Iskandar considered his employees as sales advisors rather than salespeople. In Iskandar’s view, a salesperson would try to sell his/her product but a sales advisor would advise the customer on the best decision by providing information that could suit the customer’s need in line with the customer’s capability to pay. There were twenty sales advisors under his management. Rather than employing experienced salespersons, Iskandar preferred to employ individuals who were new in the sales industry and used to train them himself. In this way, he could groom them with better communication skills that suited WRC Auto’s working culture. He believed that the salespersons were the key to his company’s success.
One of Iskandar’s strategies was to set a target where all his employees must achieve at least 90 percent of SSI each month in order to win the SSI award each year. Being a manager, Iskandar felt that his responsibility was not only to achieve sales target but to retain customers and provide the best service he could. Once a customer wanted a gold color Myvi and WRC Auto did not have that in stock at that time. In fact, none of the dealers in Kuala Lumpur and Selangor had an extra gold Myvi. In order to meet that customer’s demand, Iskandar asked that salesperson to collect a gold Myvi from a dealer all the way in Kedah, which was 433 kilometres away from Kuala Lumpur.
WRC Auto was not only selling a product but also was ‘selling’ its services. Any information that customers required, the salesperson provided. They needed to have sufficient product knowledge in terms of available variants in the stock, pros and cons of each car and comparison between each variant and also between Perodua and its competitors. Iskandar hardly put emphasis on the internet as the platform to promote the showroom. However, he left it to his salespersons to do any additional advertisement on social media. Instead, he preferred to assign his salespersons to distribute flyers, putting on banners, and perform road-shows as a promotional tool. Every week he used to arrange two to three sales meetings to follow up with his sales advisors on the number of bookings they had, allocations and registrations.
Among his employees, he was a role model in his noble attitude and behavior. He always told his team that, ‘I am down with all of you, whether you are wrong or right. But I will tell you when you are wrong. But, I will be with you and help you get it right’. Moreover, he always put his staff as a priority and believed that the key to success for a business was its employees. Being sales advisors was not an easy task since they had no basic salary, no annual leave and no medical benefit. Their income was wholly dependent on the commission that they got from selling the cars. Iskandar knew that there were possibilities that his sales advisor could leave the company anytime due to these reasons. Therefore, he treated his sales advisors like family, trusted them and engaged them in WRC different activities, delegating them responsibilities and authorities to make a decision. Through these methods, he was able to stimulate loyalty among his staff and encouraged them to stay.
Relationship Between WRC and Their Customer
WRC’s target market mostly came from middle-income people and those who can drive, regardless of their gender and marital status. Based on WRC’s statistics, customers who visited its outlet often came with friends or family either spouse or children and the numbers gradually increased during school holidays. WRC often participated in relevant events, giving out special promotions and cash rebates, especially during festive seasons. Besides, there were also promotions for fresh graduate students that enabled them to own a car without paying any down payment. It was a win-win situation for the newly employed customers and also the dealer since it increased the sales of the outlet and at the same time helped the customer to own their first car. Most of them bought Perodua Viva or Perodua Myvi since these two types of model were affordable in price and low in fuel consumption.
A salesperson of WRC needed to understand buyers’ requirements and their interests. Therefore, they had to have a good understanding and knowledge about the products’ characteristics, features, warranty, and colors available for each model as well as the competitors’ products. This was crucial to assist them to compare Perodua’s products with other brands that were available in the similar range. Other than that, they were expected to explain to their potential customers on the differences and similarities of every car in order for them to assist the customer to make decisions. Iskandar always stressed on an important matter, that is, customers should not be judged based on their appearance. Words needed to be put in the most polite manner so they do not feel insulted and at the same time felt appreciated. This made the customer feel more comfortable to share with them his/her previous experience with the product and his/her interest.
Consumer satisfaction was a crucial matter for WRC; thus, it focused on the importance of good customer engagement. Iskandar counted heavily on customer–salesperson relationship and believed that it was crucial for his outlet to maintain a good rapport with its existing and potential customers in order for WRC to get more referrals that would contribute to its sales. Moreover, it was to create customer brand loyalty and increase the probability of customers buying cars from WRC. Towards achieving these objectives, WRC used to offer full fuel tanks, smart tag, touch ‘n’ go card, free tinted and many other gifts to attract customers in buying Perodua cars from its outlet. Other than that, WRC was also well known among residents in Wangsa Maju for its annual social program such as breakfasting event during Ramadhan, open-house during festive seasons and lunch events as well as other CSR programs. These activities helped WRC to showcase its existence among the residence in Wangsa Maju area.
The Effect of Tsunami: Sufferings Test Strength of Endurance…
The Great Tohoku Tsunami occurred on the North-East coast of Japan during March 2011. This region of Japan got affected badly because of the damage to the nuclear reactor facility near the seashore that disrupted power to the residential and commercial establishment in and around the area. Distressed over the leaking radiation, the Japanese government evacuated the people living in the vicinity and closed the highways to the manufacturing areas (The Sydney Morning Gerald, 2011). The Precision manufacturing industry which was also affected by tremors and after-shock led to the manufactures shutting operations as well as the ports that shipped the products to all over the world (Canis, 2011).
This natural disaster caused the quirks and fragility of elements of the global auto supply chain. A standard car had over 15,000 parts and missing some essential components might affect the completion of the vehicles, causing the slowdown or time extension of the completion in assembly lines. After China, Japan was known as the world’s second-largest vehicle-producing country. Moreover, most of the vehicle parts were manufactured in Japan. Many automobile technologies were invented in Japan, allowing the country suppliers substantial and growing shares of the global market. Thus, the automakers that depended on these suppliers had few alternative resources of important inputs. In addition, it took months for a full restoration of supply capacity in the affected areas.
Overall, the Malaysian automotive association had reduced its 2011 total industry volume target by 3 percent to 608,000 units down from 618.000, due to the supply issue in 2011 (Oxford Business Group, 2011). Perodua Malaysia was affected by the shortage of electronics, brakes, specialized paint and electronic transmissions. Around 12 percent of Perodua’s total vendors (both local and foreign) were affected by the Japanese earthquake (Mahalingam, 2011). The company’s inventories were affected with overall production between March and June and were expected to slip by an average of 11 percent. (Business News, 2011).
Apparently, Myvi and Viva’s gearbox and engine were manufactured in Japan and, thus, when the plants in Japan were temporarily shut down due to the natural disaster, Perodua had to bear the consequences and stop their production. Perodua was fortunate that the technical partner and stockholder Daihatsu Motor Company (DMC) gave Perodua priority when supplying parts, as it saw its potential growth in the region. Perodua also supplied DMC with knocked down kits for their vehicles to seven other export markets. It also exported engine component to Indonesia, Pakistan, and Japan. This highlighted Malaysia’s potential as a regional centre for exporting automotive parts. Perodua also made adjustments to ensure inventories last until May.
Iskandar’s Worry… How to Survive?
Iskandar stepped out of his car and headed into the showroom. All his staff was already in the meeting room discussing with each other. With their worried faces, it seemed that they already knew what they would be facing for the next 3 months. They did not expect this tragedy to occur but it did and whether they liked it or not, they had to face it. Since Perodua announced that there would be no sales and SSI target these 3 months and the profit for the year 2011 would be pro-rated to 9 months only, there was no need to focus on achieving their sales target rather focus on merely achieving the break-even. Sales might drop down due to low supply but still, they needed to sell cars to earn a living.
Iskandar tried to find the right words to describe the situation in front of his sales team. He was trying his best to be positive and to show enthusiasm to boost up his team’s morale and to convince them that it would be just for a short period of time. He ended his discussion by saying:
Look. The tsunami and earthquake are something that is beyond our control. You see, Not only Perodua, all players of the automotive industry are now subject to this situation. But we will not give up. We will fight for the best as always. Remember, you are not alone. We will make it together.
Although Iskandar was very positive during the meeting, he was deeply saddened and worried in his mind. He whispered to himself:
How to sustain WRC Auto? At least we need to maintain the overhead cost such as rental and utilities. If not the profit, at least have to sustain.
Few questions came to his mind which made him feel nervous:
How to assure that the customers will be willing to wait patiently for the cars they ordered? Will the customers be satisfied with the excuses given? Will they stick to Perodua or switch to other reputed brands? How can I motivate my salespersons to keep on selling cars? How can I convince them not to leave the company during this tough situation? Most importantly, how to cover the cost for these three months? It is not a joke to achieve break-even in such a situation… Oh God, please show me the way…
He felt vulnerable by thinking so many challenges. He was worried by thinking that the company had to sustain with the limited capability that they had. He walked out of the meeting room and prayed for the best.
Footnotes
Acknowledgements
The authors would like to thank Mohd Iskandar Shah bin Ibrahim, the outlet manager of WRC Auto Sdn Bhd for his considerable time and attention in providing detailed first-hand information for this teaching case.
Declaration of Conflicting Interests
The authors declared the following potential conflicts of interest with respect to the research, authorship, and/or publication of this article: The Authors of this case declare(s) that there is no conflict of interest
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.