Shock and Audi

In just five years Audi has become the second largest luxury car maker in India thanks to Michael Perschke's strategy: Focus on class defining leaders

Published: Jun 12, 2012 06:22:12 AM IST
Updated: Feb 28, 2014 12:41:47 PM IST
Shock and Audi
Image: Vikas Khot
PITCH PERFECT Audi India head Michael Perschke (right) with Adi Godrej

Coming out of a meeting with Michael Perschke, it’s near impossible to think of him as anything but a cowboy who spouts wisdom from the American Wild West, of the kind Will Rogers, that cowboy and comedian from the 1920s, would. It is easy to imagine Perschke saying what Rogers had said: “There are three kinds of men: The ones that learn by reading; the few who learn by observation; the rest of them have to pee on the electric fence.”

Extrapolate his native wit and wisdom to the Indian luxury car space and this much is clear—there’s a gunfight on with three gun slingers at the bar. The BMW, or Bimmer as aficionados like to call it; the iconic Mercedes that generations of Indians have grown up with; and the newest entrant on the block, Audi. Michael Perschke heads Audi’s India operations.

It was inevitable therefore that I’d ask him what he thought about competition. A few weeks ago, at a press conference, Peter Honegg, MD and CEO of Mercedes-Benz  India, said he doesn’t want to be in the numbers game. “Sorry, that’s bullshit!” Perschke told me in a matter-of-fact, gun slinger tone. “Everybody is here for the numbers because there are only four places left in the world to fight it out—China, Russia, India and Brazil. Every place else, the turf’s been taken. So if you’re not here for the numbers today, tomorrow you’re out.”

To rub it in, he added, what Mercedes is really saying is that they’ve been beaten. That they’re couching facts and trying to put it as politely as they can. It’s difficult to argue with Perschke because he’s got the numbers to prove it.

During the first three months of this year, Audi sold 2,269 cars while Mercedes sold 2,130. That makes Audi the second largest luxury car maker in the country after BMW. To put things into perspective though, BMW’s ahead of Audi by just 100 units. Pause for a moment now and take these numbers in.

l Through all of 2008, Audi just about managed to sell 790 cars.

l BMW managed to sell 2,900-odd and Mercedes a little over 2,400.

They tell you a couple of things.

l In four years, the market for luxury cars in the country had quadrupled.

l If this were a shootout, Audi is the cowboy that’s come out of nowhere, and Perschke doesn’t want to be the one who gets to pee on the electric fence. “I want to be Number One,” he says.

Call it arrogance, call it gumption on his part. But after listening to him, I’m tempted to think of him as the kind of man who’s learnt by observation. “I asked what does it take to get to be Number One? What will it take each department in the company and each dealer to get us there? The key lies in synchronising everyone. So first, you got to orchestrate that vision and take it down the entire value chain…each person in the organisation ought to know, what will be their contribution,” he says.

For 20 years, Mercedes was the undisputed king. Then BMW came in and attempted to wean the younger generation who had money on their hands. BMW got its toehold into the country by using a bottom up strategy and introducing its entry-level cars. These were readily embraced by the younger buyers. This gave BMW the confidence to launch more expensive variants and over time, the strategy allowed it to displace Mercedes as the most favoured luxury car in India.

So, five years ago, when Audi started to look at India, it had a dilemma on its hands: Mercedes had the top-end and older generation to itself. BMW was all over the place with the younger generation on its side. Where does Audi fit into the scheme of things? So Benoit Tiers, who was then Audi’s India CEO, thought up a strategy. No point competing with the big boys and stand the risk of getting lost in the crowd. So he ruled out plush sedans and looked for a niche. “We told ourselves that because many Indians don’t know Audi, we need to make a statement. And to make a statement, we need to be at the absolute top of the pyramid,” recalls Perschke.

The outcome of this thinking was the launch of the Audi Q7, a luxury sports utility vehicle (SUV). Neither BMW nor Mercedes offered anything like it in India. It got Audi the intended results in terms of brand building. One of its first buyers was actor John Abraham who latched on to it even before the model was launched. “He enquired even before we came to India,” says Perschke. He calls it the “Halo Model” around which a brand’s identity is built. Audi was content keeping it that way for a few years. In that sense, the company got lucky because celebrities wanted to be seen with the car. 

Shock and Audi
Over time though, Audi reasoned internally it needed to ramp up volumes in India as well. To do that, the company would need somebody who knew India well and had relationships in place to ramp up the dealer network. That’s when it zeroed in on Perschke, a former Mercedes hand.

Tiers was asked to head Audi’s operations in France and Perschke, with three years of India-experience on hand, was hired with a new mandate: Change Audi’s profile from that of a niche SUV to that of a luxury car manufacturer.

Once on board, he thought it pointless selling to the masses. Some research later, he zeroed in on the A8, a luxury sedan in Audi’s portfolio, and decided to focus on people he calls “class defining leaders”. But to do that, he figured he’d have to go back to becoming a car salesman once again—and an unconventional one at that. Because to get the people he’d defined as his core customers, he’d have to go to where they’d be. He figured the World Economic Forum at Davos would be a good place to start. Most companies know that. So they send their top sales team there.

But Perschke argued that as CEO, he’d wield a greater impact. The people he wanted to get to wouldn’t engage with his sales team. They’d engage only with people who were at par with them and who talked their language. Over the years, he had cultivated a deep network of relationships and was on first name terms with pretty much everybody who mattered in the country. And so at Davos, he started to make his pitches.

“Everybody whom you know comes by and you say hello to them. So there’s a lot of personal rapport involved in this. It’s not something money can buy. I don’t sell them a car. I reach out to them, listen and understand how to position the brand in a way they can personally associate with.”

“Baba Kalyani used to drive the Mercedes S class for 20 years. He now drives the A8. Adi Godrej is a customer. Narendra Pawar of NIIT, Malvinder Singh from Fortis, Pawan Munjal, Rahul Bajaj, Rajiv Bajaj, Sanjiv Bajaj, Abhishek Bachchan, Ranbir Kapoor…they’re all my customers today,” he rattles away.

It helped that Audi is a strategic partner at Davos and every VIP who goes there is taken around in one of its cars. “A lot of these people take a few minutes out of their busy schedule and do the Audi ice driving experience. This year alone we used the experience to convince eight-nine key people to buy an Audi. Jyotiraditya Scindia was one of them. I personally did the test drive with him in Davos,” he says.

Why he does that is clear. If Pawan Munjal, who heads India’s largest two-wheeler manufacturing company, buys an A8, it sends out a strong message to others at the top of the pyramid. If Scindia buys an A8, it translates into 100-150 potential buyers for the brand, Perschke reasons.
Not just that, Perschke goes out of his way to maintain personal relationships with all of these people even after the sale is done.

“You cannot reach that same level of traction if you go bottom up. Then you get stuck somewhere with the upper middle management. Imagine if Kushal Pal Singh who heads DLF drives around in an Audi, it makes everybody at DLF want to be seen in one as well because everybody wants to be seen with something the boss has. So I don’t waste my time at the bottom,” he adds.

But big guys don’t bring volumes, so how do you get the numbers? I ask him. His answer is a fairly routine one. “Volumes come from strong dealer networks.” But how he goes about it isn’t routine. “I look for some values when scouting for potential dealers. The first question I ask is, is he hungry enough to want to be Number One? We don’t want kids with golden spoons; we don’t want portfolio investors; we don’t want people who just want to add Audi as a stamp in their collection.” With that mandate clear, his team goes around the country looking for local entrepreneurs who enjoy patronage in their social circles.

Shock and Audi
In Coimbatore for instance, Audi partnered with CR Anandakrishnan, the son of KP Ramasamy who founded the KPR Group, a company with interests in textiles, yarn and textile processing.

That was because he reasoned Anandakrishnan’s profile fitted the kind of personality he thought would sit well with Audi. Everybody in Coimbatore respects his family; he is easily among the 50-100 most influential people there; and he runs a medium-sized family business.

With somebody like that on Audi’s side, the scales could be tilted in its favour.

Gaurav Anand, Audi’s dealer in Indore, is another classic case in point. His family runs a chain in the city, called Punjab Jewellers. Because Anand met all of Audi and Perschke’s requirements, he was roped in as a dealer late last year. Perschke reckoned it was a 10-car market on the outside. In six months though, Anand’s dealership sold 100 cars, confounding all of Perschke’s expectations. For a city the size of Indore, that’s a pretty damn big number.

At the heart of Anand’s success in Indore is his entrepreneurial style. “I don’t push people to buy a car,” says Anand. “Instead, I ask people who have the money whether or not they deserve luxury,” he explains. It’s a provocative question to ask in a small city dominated by family-run businesses where it is the older generation that still gets to sign on the cheque.

This, in spite of the fact that they’ve handed the baton over to their children. For a generation that built their business in a controlled economy, buying a car that costs upwards of Rs 50 lakh is an indulgence and violates their sensibilities.

 So, Anand goes about telling them that spending this kind of money on a car isn’t a vulgar flaunt, but a celebration of the success they’ve earned the hard way. When put like this, they sign on the dotted line. And it helps that Anand is one of their own.

For Perschke, these are the kind of entrepreneurs and dealers who know the potential of Tier II cities like Coimbatore and Indore. Sources say Audi has dealers in cities like these with sales targets of a 100 cars each for 2012. In Tier I cities like Mumbai and Delhi, the target is a stiffer 1,000 cars. The numbers are achievable he says because he sincerely believes in selling using “local heroes”.

The downside? It’s a one man show right now at Audi. And a lot rests on Perschke’s personal charisma. “He firmly believes in the power of the brand and everything he does has something to do with work. Right from the people he hangs out with to selecting dealers and interacting with customers, he is involved in everything,” says a former Audi executive who did not want to be named.

It’s the kind of drive that’s gotten him within striking distance of being Number One. “As an athlete going to the London Olympics, you can look at it in two ways. You can say I am happy I got a ticket to go there. Or you could say there is only one purpose. I want to get gold.” He wants gold for Audi. But whether the momentum will outlast his cowboy style remains to be seen. Because fact is, his plain speak and aggressive ways have gotten him into trouble in the past.

For instance, there was this once when in an interview with Mint, a business newspaper, he went on the record saying that at Audi’s India office, horns are treated as a category because Indians honk too much. It was a public relations disaster and his team had to work hard at cleaning up the mess it left behind. Disasters like these bother him terribly because he knows it’s bad for the brand.

But as cowboys like to say, “If you think bull riding isn’t intense, come sit on his back and try on my saddle. This a’int for tenderfoots.”

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(This story appears in the 22 June, 2012 issue of Forbes India. To visit our Archives, click here.)

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  • Manish Jain

    The story was very informative and I really liked the insight that Audi has for picking their dealers around the country like Indore. I think it shows Audi is being very aggressive and honestly Mercedes has just sat on the sidelines. It\'s also driven by the fact globally the Mercedes cars have been pretty uninspiring for quite sometime whereas Audi pretty much created the market for bold headlight designs. Something you didn\'t really mention was the story behind the Mumbai Audi showroom shutting down so quickly. I\'m guessing it played a major part to the overall Audi India growth story.

    on Jun 24, 2012
  • S. Srinivasan

    I like the attitude of the story and the interesting tale it tells. Very well presented. Thank you. Having said that, let me bitch about Audi a bit. We have already seen a colossal failure story in Mercedes Benz India, which hasn't converted its head start of several decades in the country into large-scale sales across the model spectrum. Especially, the A Class and C Class should be ruling the Indian roads today, but as we know, that isn't the case. It clearly demonstrates that the `Halo Effect' business strategy, while being a no-brainer in a developing country, is not an assured path to success. What matters to Audi is the conversion of the brand equity into actual introductions of models such as A1 and A3 for the young-and-(y)earning, and to a lesser extent the A4 Sedan for the married wannabes. That's what will bring the numbers, but the success of A1 or A3 will not be guaranteed by the image that A8 earns for Audi. If that were the case, Skoda should have been a big success in the hatchback segment and Mistubishi (remember Lancer?) should have been laughing its way to the bank. Come on, others have tried out this `top-down' strategy in India earlier and failed to convert it into mass sales. Audi's future execution will determine whether it can succeed. I am surprised that Perschke says nobody has heard of Audi before. The company's brand equity was built in 1985 when Ravi Shastri won the Champion of Champions Award in Australia. Audi should have entered India right then. Even now, all they need to do is to introduce no-nonsense cars and compete with BMW 1 Series/Mercedes A class for the entry-level luxury market and BMW 3 Series/Mercedes C Class for the executive compact market. Introducing huge monstrosities like the A8 (It is more than 17-feet long and almost 5 feet high), while being passed off to the media as the `halo-effect' strategy, is only a tactic to postpone heavy investments in a large sales and service network that introducing smaller cars will require. And let us get this straight. The A8, which requires nothing less than an elephant shed to park, will build a loyal following only among grave, old men who went to the business school in the 1960s and conduct board meetings on long mahogany tables wearing suit pants above their navels. You know the type that once used to drive the Mercedes.

    on Jun 12, 2012
    • Ashish K. Mishra

      Thanks for your comment Mr.Srinivasan. I am glad you liked the piece. Let me try and put a few points in perspective here. 1. Yes Mercedes Benz in India isn't doing well. I don't know why you believe that the A Class and the C Class will rule the Indian roads today. The A Class hasn't been launched in India yet and Mercedes doesn't think India is ready for that product. Both in terms of localization and price you pay for a luxury vehicle. In fact Mercedes plans to launch the B Class (hatchback) later this year and is working very hard on its localization strategy. But still the feeling is that a luxury hatchback which would cost upwards of Rs. 20 lakh will be a slightly confusing product. The C Class has been around for a long time but it has good competition from the BMW 3 Series and the Audi A4. And the A and C Class are not 'Halo Effect' models. Perschke clearly says that it is the top of the line Q7, A8 and R8 which are the halo models. 2. I am not clear on the point you are making on the A1 and A3. I think you mean getting volumes. Well, the sales of Audi's Q3 which is the entry level luxury SUV under Rs. 30 lakhs should be out next month. I am expecting it will follow a very similar trend of what has happened at BMW. In the first five months of 2012, BMW sold 974 units of the X1 compare to 1,007 units of the 3 Series. The A8 is the 'halo model' which sets up the brand image right at the top. 3. Your point about Skoda and Mitsubishi are rather off the mark. Skoda suffered from poor localization level, over pricing of its products and poor after sales service. Mitsubishi suffered from pathetic after sales and dealer network and the limitations of its tie up with Hindustan Motors. And why would you compare the 'top down' strategy of a luxury car manufacturer with a 'mass market player'? 4. 1985-2007 is a very long time. Do you mean to say that because Ravi Shastri got that Audi as a prize, several Indians will queue up to buy an Audi brand. I believe not. 5. Introducing the A8 to postpone heavy investment in large sales and service network? How are the two related? Be it for any product, every luxury car manufacturer, Mercedes, BMW, Audi are all penetrating deeper into India today. And their goal is that a guy who buys any of these brands should have support at every 300 kms.

      on Jun 12, 2012
      • S. Srinivasan

        Dear Ashish Mishra, I know you will pardon another rambling note from me; so here it is. First of all, thanks for taking the time to read and respond to my comment. Your excellent points on the Indian auto market are noted. I agree with most of them and learned a few new insights today. However, let me restate what I said earlier, now stripped to the bare essentials: For long-term success, Audi may be better off with a bottom-up approach than a top-down approach. I set out my reasons below, also answering some of the points you have raised. AUDI'S STATUS AS A LUXURY CARMAKER: Audi is considered only a second-rung luxury carmaker, not really in the class of BMW or Mercedes-Benz, because of its past quality problems. The sudden-acceleration issue of the 1980s was discussed threadbare on U.S. national television, making Audi a lesser brand in perception. (Now I think this may be completely unjust, but that's how things work in the luxury market.) SKODA and MITSUBISHI. I took their example only to emphasize the commonalities between them and Audi, even though I fully appreciate they belong to different classes of carmakers. You nailed it when you said Skoda and Mitsubishi had their own problems, leading to their failure. And that's my point too. Skoda and Mitsubishi acquired their baggage because they embraced the topdown approach, which Audi has rechristened as `halo effect.' The two companies may have done it at a lower price point, but remember a Rs. 10 lakh Lancer was a huge luxury in the 1990s, even more than a Rs. 50 lakh BMW is today. THE LUXURY HATCHBACK: The luxury hatchback is not a confused product but an established and popular product that sustains the revenues of luxury carmakers including BMW (Its 1 series and 3 series are its global mainstay now). With Indians increasingly traveling to markets where these cars are driven widely, they are aware of the class. So why should it be confusing? I am sure Mercedes Benz's B Class launch is a smart move. They may have chosen it because it may be their best bet to blend performance and economy, a difficult balance the Indian market demands at all levels. So what is different about these products? It is just that they need more touch points, an immense service network and offer much thinner margins relative to cars that measure 20 feet in length. But here is the reward: it is these hatchbacks that will build the luxury market in India, not the A8s. If your entire organization's thinking, marketing and infrastructure are all geared to delivering the A8 to the very rich who are buying their third or fourth luxury cars, how are you going to be ready to sell the hatchback that attracts first-time buyers? OVERPRICING: One of the reasons why BMW outsells Audi is that the latter overprices its products globally. An Audi A4, which is only a challenger, is actually more expensive than the BMW 3 Series, feature to feature. And is there anybody who argues A4 is definitely a superior car than the 3 series? Why do people go for the halo effect? So that tomorrow they can command a premium for brand in all models. This is what I read from Perschke's comments too. What I found a bit off the mark was that here is a company that needs to reduce prices and welcome buyers who want to buy an Audi, rather than sell overpriced cars and push them to BMW. But the Indian unit seems to be building a `halo' with A8, saying the lower models will come once the halo has established its premium image. RAVI SHASTRI: My comment on Ravi Shastri was a cheeky one. The 1980s were a very bad time for Audi with all the unwanted attention on its quality problems. I was only saying, rhetorically, that they should have come right then. Obviously, I know there was no market for their products then. But the sarcasm in my comment was that they wouldn't want the Indian reader to know the previous controversies and the long-term downgrade of reputation they have suffered. They would only want to open on a clean slate and it suits them to think nobody knows the Audi of the 1980s. TO PUT IT IN BALANCE: None of what I said is meant to degrade Audi. They are a great company and we don't even often think they are owned by a mass-market carmaker like Volkswagen. They should succeed big time in India, if only to give the biggies a run for their money. I am just saying the A8 elitism may not work. If they don't change, when the luxury hatchback market explodes, BMW and Mercedes Benz may be more ready than Audi.

        on Jun 12, 2012
  • Praveen Pandey

    Fav piece...excellent approach on the story...

    on Jun 12, 2012