Will the low-cost high-value formula work for the Datsun GO?

With the launch of the Datsun brand in New Delhi on Monday, the spotlight is back on the low-cost, high-value hatchback segment. At a glittering ceremony where the micro hatch GO -   to be launched officially in 2014 - was unveiled, Carlos Ghosn, CEO of Nissan Motor Co. Ltd.,  stated that the car would be priced under the Rs 4 lakh bracket.

It is, however, a massive challenge to be this optimistic a whole year before the car is available. Input costs, depreciating rupee value and the overall health of the market may finally determine the cost of the vehicle. But even if Datsun does manage to price it under Rs 4 lakh, can the car be the success it aspires to be?

In terms of styling, the car looks smart and fresh and doesn't share a single panel with the Micra or Pulse

The competition

To answer this, we must first look at the entry-level hatchback segment populated by cars such as the Maruti Alto and Hyundai Eon – both which are priced under Rs 4 lakh. Of these, the Maruti Alto is the only car to have enjoyed immense success; even though the Eon sells in high numbers, they aren't even close to the numbers enjoyed by the Alto.

Maruti's small car for the masses had gained a reputation as India's largest selling car, a title it enjoyed for several years until a few months ago another car from the company stable usurped it.

The GO will go up against formidable incumbents in the Alto 800 and the Eon

The Swift Dzire today, is the largest selling car in India and that has clearly drawn the spotlight on the entry-level sedan segment. Apart from the Dzire, even the newly-launched Honda Amaze is attracting phenomenally huge buyers. This indicates a definitive shift in buying patterns; no longer is the compact hatchback the darling of the masses.

Premium hatchbacks such as the Polo GT are enjoying some success

The hatchback segment, however, cannot be ignored. Overall sales in this segment far exceed those of the entry sedan segment. However, starting at Rs 3.6 lakh and going all the way to Rs 8 lakh - where the Polo GT TSi sits - the hatchback segment is inundated with dozens of models. A little higher up the price chart from the Alto and Eon exist cars such as the Chevy Spark, Wagon R, Zen Estilo, i10 and the Indica. However, we are expecting another player in this segment shortly: the Hyundai small car code-named the BA, expected to start below Rs 4 lakh.

Challenges faced by the Datsun GO

With so many players already in the fray how does Datsun hope to gain an advantage or even make a dent? Yes, it will create a flutter because it is new but Datsun will have to offer more than just a low sticker price. Cut-price won't cut it because sales in that segment are falling, dramatically. Banks aren't extending loans and neither are borrowers flocking to banks thanks to of high interest rates. And this segment thrives on EMI funding. The target market for these cars doesn't have disposable income to make outright purchases. Those that have money to spend aren't exactly looking for a entry level car; they want something more aspirational, and that usually means something with a boot! Which explains why the Dzire and Amaze are doing well; it's not just because they also have diesel engines.

Carlos Ghosn with the new Datsun GO

What Datsun could have done

So here is what I think would have been a smarter strategy. Datsun could have continued to play the low-cost, high-value card, but rather than announcing a hatchback as their first model, they should have figured out a sedan. There will be a sedan built on the GO platform in the future, but allowing that to create headlines first would have made more of a statement. Just look at Ford and the kind of impact the EcoSport has made. No better example exists today in the Indian market than the EcoSport as a low-cost, high-value product. Imagine then, the kind of frenzy that a sedan priced under Rs 4 lakh could create!

Another play that Datsun could have made was to showcase the MPV – another future product based on the GO platform but specifically targeted at certain South-East Asian markets such as Indonesia. That vehicle will come to India as well, but will take at least another couple of years. There is nothing an Indian loves more than seeing a large vehicle at a price that he thinks is just right. I'm just not sure how many people are out there thinking that a hatch under Rs 4 lakh is great value for money. The GO MPV would instantly take on the Maruti Ertiga and we know that segment is extremely profitable right now, with only two players: Maruti and Mahindra.

Datsun could have made more sense if the approach was a top-down one where high-value products were announced as low-priced entrants. That is where I believe the magic happens today, not by being one more among many. Datsun may have read the market wrong, but I might not be the best judge of Indian market dynamics. One year is a while and lots of things could change. We are waiting eagerly to see just how this new venture pans out.