Imagine you're German, you need a new family car, and you have a limited budget — say, US$9,400. What can you do? Continue using public transportation? Buy a used car? Or maybe buy a brand-new Dacia Logan!
Dacia is a Romanian car manufacturer acquired in 1999 byFrench automaker Renault with the aim of designing low-cost passenger vehicles for emerging Eastern European markets. The Logan, a five-seater with a spacious trunk, was introduced in Romania in 2004 and subsequently to neighboring countries. The Logan's basic version, costing US$6,500, was revolutionary in the automotive industry well before the Tata Nano appeared on the scene. Dacia now offers pickups, vans, station wagons, and mini SUVs in emerging as well as developed markets. In Germany alone, where the car is offered starting at US$9,400, Dacia's sales jumped from about 6,000 units in 2006 to about 85,000 units in 2009 — this in a land studded with its own car brands.
To offer the car at such low prices, Renault followed a stringent design-to-cost approach. The Logan consists of fewer parts than the average Western car and is made of traditional steel in a labor-intensive assembly process in a low-cost country. To meet the needs of emerging market customers, the car has a fuel filter, increased ground clearance, and a battery that can survive extreme weather conditions. Maintenance is simple; a basic technician can do the work. Interestingly, the Logan originally was conceived at Renault's French R&D headquarters. Product development responsibility gradually shifted to the company's new R&D center in Romania.
When Dacia launched the Logan in Germany, they followed five principles that may be useful to other companies planning to bring emerging market products into developed markets.
Focus on building platforms, not products. Platforms can be scaled up or down for global markets. For the German market, Dacia scaled up the product platform with more safety features and more appealing exterior characteristics, such as metallic paint. This allowed the automaker to charge higher prices and, in turn, reap higher profit margins.
Select target customers. The company carefully chose its target customers. Typically, these customers are people who buy a Logan instead of a used car, a cheap, Asian import, or a very small European car. These customers value price, space, and reliability. Renault highlights Logan's best space-price ratio in its respective car segment. The car's exceptional reliability is highlighted via guarantees, regular checks, and customer satisfaction surveys.
Emerging market platforms must be low cost but not low quality. Dacia's marketing emphasized the fact that it's able to offer low prices without sacrificing quality and safety.
Commercial innovations are essential. The Logan is not just a product innovation, but a commercial innovation as well. Dacia employs low-cost marketing (they don't advertise on TV) and they initially sold the Logan through existing Renault dealerships.
Protect global brand. Renault introduced Dacai as a separate brand, to avoid potential negative effects on its core brand.
We may be at the cusp of a new era where breakthrough innovations happen first in poor countries and those innovations subsequently are taken to rich countries. Logan is a powerful example of suchreverse innovation.
Dacia is a Romanian car manufacturer acquired in 1999 byFrench automaker Renault with the aim of designing low-cost passenger vehicles for emerging Eastern European markets. The Logan, a five-seater with a spacious trunk, was introduced in Romania in 2004 and subsequently to neighboring countries. The Logan's basic version, costing US$6,500, was revolutionary in the automotive industry well before the Tata Nano appeared on the scene. Dacia now offers pickups, vans, station wagons, and mini SUVs in emerging as well as developed markets. In Germany alone, where the car is offered starting at US$9,400, Dacia's sales jumped from about 6,000 units in 2006 to about 85,000 units in 2009 — this in a land studded with its own car brands.
To offer the car at such low prices, Renault followed a stringent design-to-cost approach. The Logan consists of fewer parts than the average Western car and is made of traditional steel in a labor-intensive assembly process in a low-cost country. To meet the needs of emerging market customers, the car has a fuel filter, increased ground clearance, and a battery that can survive extreme weather conditions. Maintenance is simple; a basic technician can do the work. Interestingly, the Logan originally was conceived at Renault's French R&D headquarters. Product development responsibility gradually shifted to the company's new R&D center in Romania.
When Dacia launched the Logan in Germany, they followed five principles that may be useful to other companies planning to bring emerging market products into developed markets.
Focus on building platforms, not products. Platforms can be scaled up or down for global markets. For the German market, Dacia scaled up the product platform with more safety features and more appealing exterior characteristics, such as metallic paint. This allowed the automaker to charge higher prices and, in turn, reap higher profit margins.
Select target customers. The company carefully chose its target customers. Typically, these customers are people who buy a Logan instead of a used car, a cheap, Asian import, or a very small European car. These customers value price, space, and reliability. Renault highlights Logan's best space-price ratio in its respective car segment. The car's exceptional reliability is highlighted via guarantees, regular checks, and customer satisfaction surveys.
Emerging market platforms must be low cost but not low quality. Dacia's marketing emphasized the fact that it's able to offer low prices without sacrificing quality and safety.
Commercial innovations are essential. The Logan is not just a product innovation, but a commercial innovation as well. Dacia employs low-cost marketing (they don't advertise on TV) and they initially sold the Logan through existing Renault dealerships.
Protect global brand. Renault introduced Dacai as a separate brand, to avoid potential negative effects on its core brand.
We may be at the cusp of a new era where breakthrough innovations happen first in poor countries and those innovations subsequently are taken to rich countries. Logan is a powerful example of suchreverse innovation.
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