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Seven months on, has Maruti’s Nexa bet gone wrong?

The country’s number one carmaker Maruti Suzuki is eyeing 2 million unit sales target by 2020. As it gears up for the battle, Maruti is hoping that its attempt to break out of its traditional low cost offerings will fare better than its past failed experiments.

CNBC-TV18’s Ronojoy Banerjee finds out whether the company’s premium strategy is working and if Maruti still has the appetite to cross the Rs 15 lakh barrier after the steep price correction of the S-Cross.

Maruti is hoping history doesn’t repeat itself as it makes another push to break out of the value for money segment. Seven months after the launch of Maruti’s premium crossover, the S-Cross, retailed through its new premium dealership Nexa, course correction is under way.

Maruti had to quickly take a steep Rs 2 lakh price cut on the 1.6 litre S-Cross offering to revive demand.

Though sales since then have jumped over 30 percent, questions still linger on whether customers are willing to shell out up to Rs 15 lakh on a Maruti offering. On its part, the company maintains the price cut on S-Cross has not changed Maruti’s future premium plans.

Says Maruti Executive Director RS Kalsi: “We have resorted to price cut because customers did not see value. We have seen bookings increase by 30 percent on S-Cross since the price cut.”

Maruti’s decision to reduce focus on the price-sensitive small cars and to diversify into premium category is not hard to understand as the share of small cars in the over industry continues to shrink.

Moreover, from the next year, carmakers will have to meet stringent safety norms and upgrade emission standards to meet BS VI norms, which will make small cars more expensive and blur the lines with more premium offerings.

Brand experts argue that the company’s premiumisation drive may not immediately bring results as it will take time for customers to accept Maruti as a premium manufacturer.

“Customers need to be given time for accepting Maruti as premium carmaker and Maruti’s experiment is more modest than Toyota’s Lexus,” says Santosh Desai, CEO and MD, Future Brands.

Despite the hiccups, the company is confident of the Nexa strategy.

Till date, Maruti has sold 60,000 units through the Nexa platform – accounting for about 8 percent of its overall volumes – which the company says will reach up to 15 percent in the coming years.

Though Maruti is the first Indian carmaker to experiment with dual dealerships, experts say there are parallels in the auto industry.

“Royal Enfield is an example in this industry,” says Desai. “It is one company that went from being a rural brand to being a leading urban brand.”

Over the next 12 months, Maruti will invest heavily to double its premium showrooms to 250 across 100 cities as it eyes the 2 million target by 2020.