What Dacia can teach consumer brands

What Dacia can teach consumer brands

Flourishing in a flat market, Dacia is a textbook example of reverse innovation.

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Reinventing a brand

One of the most complex tasks a company can undertake

To do so, while eliminating any risk of damage to the core brand, is trickier still. Yet Renault has managed these twin challenges skillfully with Romanian car maker Dacia since it acquired the company in 1999. 

Dacia – named after the Dacians, the country’s early habitants – was one of the industrial bastions of Romania’s Communist regime. Founded in 1966, the company dominated its home market but made little impact in the West, where cars from the Eastern bloc were regarded as cheap but unreliable. In the 1980s and 1990s, its core products were licensed versions of cars such as the Renault 12 and so, when the French automotive giant was looking to launch value-priced passenger vehicles in Eastern Europe, Dacia was a logical acquisition. 

The first thing Renault did was modernize the Dacia factory in Mioveni, as part of a €2bn (US$3bn) investment. Before the acquisition, the plant was making 85,500 cars with 26,500 workers. By 2014, it was producing 340,000 cars with 14,000 staff. 

Vehicles produced by Dacia – primarily Logan, Duster and Sandero – are now so successful that they are sold by Renault and other brands in markets across the globe. The Logan, the 2004 entry-level model that was the first big launch for the revitalized Dacia, was conceived at Renault’s R&D HQ in France (though responsibility for R&D has since shifted to Romania.) Aiming for a target price of US$6,000, Renault took a stringent cost-to-design approach, using fewer parts than a typical Western car, offering a limited range of exterior color options, redesigning the windshield to reduce production and installation costs, and creating a vehicle that was easy to maintain.

The launch strategy focused on a product that could be scaled up or down to suit particular markets. In Germany, for example, it made the exterior more appealing with the use of metallic paint, enabling it to charge a higher price and improve its margins. In France, the Sandero model doesn’t have air conditioning, power locks or a radio as standard, but its listed price is US$10,560, significantly cheaper than comparable models from Škoda and Vauxhall/ Opel. To suit emerging markets, the Logan has a fuel filter, higher ground clearance and a battery that survives extreme weather. 

Dacia’s bosses had a clear picture of their prospective customers: people who bought a used car, a very small European vehicle or a cheap Asian import. For these car owners, space, reliability and price were paramount, so Dacia stressed how much space buyers got for their money and reassured them about quality with guarantees, frequent checks and satisfaction surveys. Its marketing strategy was different too. Initially eschewing TV advertising, Dacia developed a cool, no-hype vibe that suited a target audience motivated by value for money. 

Renault’s investment in Dacia was considerable but, just in case the reinvention didn’t succeed, it introduced Dacia into new markets as a completely separate brand. The strategy has clearly worked. The company’s price advantage has proved particularly effective in a European market bedeviled by recession, debt and unemployment, and where overall car sales have flat lined. In 2014, the European Automobile Manufacturers’ Association’s figures show that Dacia’s sales soared by nearly 24% to 359,141 in the EU. Established Western car makers have not found it easy to develop products for – and sell into – emerging markets. Dacia has proved that there is another way. 

Jan-Benedict Steenkamp, professor of marketing at the Kenan-Flagler business School in North Carolina, says: “Dacia is the best example of a car developed for emerging markets that has been introduced into developed markets and proved to be a real success. They were far ahead of other manufacturers.”

Key learnings

Four tips for executives

  • Price is paramount Dacia’s ruthless focus on economy has given it a price advantage of more than 30% over some rivals. As Steenkamp says: “There is a global segment of people who are solely focused on value for money.”
  • Low price doesn’t mean low quality. As one of Dacia’s marketing chiefs put it: “Low cost is beautiful, that’s why we all buy from IKEA and women buy from H&M.” And why supermarkets such as Aldi and Lidl are growing so fast.
  • Be clear about your pricing strategy. In an industry where discounts are common practice, Dacia sticks to its prices. What it does do, like the budget airlines, is offer a menu of prices according to customer requirements.
  • Reverse innovation can work. With Dacia, Renault reduced its cost to launch (which can be around US$1bn for a new model) and designed an affordable model that appealed to emerging and developed markets. Because Dacia sells through Renault dealers, its success has created new opportunities for the parent group.

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