Honda Activa: A Success Saga

Honda Activa is the most sought after scooter in India. Thanks to Honda which did all to make it a family two-wheeler. Its stylish looking and comfort is major contributors to its success. The Product Launch After coming out of the joint venture with KEL, HMCL planned to introduce its own two-wheelers in the market. In October 1999, in a major strategic initiative, HMCL established HMSI. The company made an initial investment of Rs 3 bn to establish a plant with an annual production capacity of 200,000 units... Launched in 2001, Honda Activa was the first scooter model of HMSI for the Indian market. A 102 cc scooter, Activa was specially designed keeping in view the needs and preferences of Indian consumers who expressed that the conventional Indian scooter was too big and difficult to handle and that the scooterette was too small and similar to a moped... Strategy Thanks to the success of its joint venture with Hero Group and KEL, 'Honda' was already a household name in India. Hence, rather than putting major efforts into brand building, HMSI's marketing strategy emphasized on offering innovative products at competitive prices, novel promotional campaigns and developing an extensive distribution network... Perfect in design and technology, Honda Activa is more than just a means of transportation. The Convenient Lift up Independent Cover (CLIC), adopted for the first time on a scooter in India, makes maintenance easier and faster, helping the rider to get back on the road much quicker than any other scooter. Honda Activa for its more practical and conservative styling, ease of use, better ride quality and the excellent 102cc engine. The Activa is

also built to be a family two-wheeler and features higher load carrying capacity than the other two scooterettes. The Activa also incorporates features that better rider comfort and includes the puncture-resistant "tuffup" tyre and tube combination, the low riding height and the low noise 4-cycle Honda engine. It gives mileage of 45-50 kmpl which is good considering the others in its segment. Price Range : 42,500-44,000 INR Probable Income Range Of People Purchasing Honda Activa : Salaried :- Rs.6000 and above Professional :- Rs.7,500 and above Business :- Rs. 50,000 per annum and above Honda Activa belongs to the 100cc-150cc segment and its competitors are: PRODUCT PRICE RANGE (INR) FUEL EFFICIENCY Honda Dio 40,000-41,500 45 kmpl Honda Aviator 46,000-50,000 50 kmpl Suzuki Access 125 47,000-50,000 55 kmpl Hero Honda Pleasure 42,500-44,000 45 kmpl Some comparisons with competitors: FEATURES ACTIVA DIO/ AVIATOR/ ACCESS 125/ PLEASURE Engine(cc) 102 102 102 125 102 Tuff-up tube X Colors available 5 5 5 5 8 Ground clearance(mm) 145 145 145 160 125 Brake Drum Drum Drum or disc Drum Drum Front luggage basket Honda Motors Co. Ltd. has the largest market share in the non-geared two-wheelers market. It sells around 28,000 units of Honda Activa every month across its various dealers all over India. Recently in December, 2007 Honda Motors Co. Ltd. celebrated 2 million mark in Activa sales. Also it is the most appreciated vehicle for its simple looks combined with excellent performance on the Indian roads. Activa was launched in 2001 but with the passage of time the tastes and preferences of people ought to change. It has reached its maturity stage and now company must add few new features to attract the young generation. Also to mention that Activa is soon to face stiff competition from its own companys Aviator and Suzukis Access-125 Both new competitors are priced more then Activa but they have completely new stylish looks and features especially designed keeping

the market segment buyers in mind. Also their color scheme and graphics are more appealing then Activa. Activa lacks a front luggage basket which makes it inconvenient for the riders to place their regular light weight stuff under the seat. And slowly with steady steps the new concept of $2500 compact cars is also entering Indian market. Tatas NANO has paved the path for such cars which will soon hit the roads. And with the credit market growing, people are expected to be more lured towards fulfilling their life long dreams to be a proud car owner.

Key Independent Variables affecting sales of Honda Activa: Easy Availability of Loans: The service sector also has boomed which aptly is reflecting in an increased sale of vehicles especially in the automobile sector.Easy Availability of loans at a cheaper rate would lead to an increase in demand of active. Increased Living Standards: With development the peoples disposable income has also increased. They are inclined towards purchasing more durable commodities for meeting their satisfaction of owning vehicles for speedy and smooth movement around the city. These factors have positive relation with demand for Honda Activa. The below mentioned factors have inverse relations with demand for Honda Activa: Mass Transportation System: India still does not have an efficient mass transportation system. People are more inclined towards traveling in their own vehicle instead of using the lethargic state transport buses. Technological Advancement : Technology is advancing at a brisk pace. And the producers are smart enough to tap these changes to increase their product demand using the latest technology. The technological advancement in a way would lead to a decrease in the demand of activa as through technological advancement new fuel efficient substitutes having varied new features would be launched and the people would tend to get fascinated towards them thereby reducing activas market share. Also few other independent variables: Substitutes available: Ho nda Dio, Honda Aviator, access 125, Hero Honda pleasure are the substitutes of active. With an increase in the price of activa customers would tend to shift to its substitutes. Increase in prices of petrol: The current scenario is going through a constant increase in the prices of petrol that has lead to a significant decline in the demand of active. Thus they exhibit inverse relationship.

 Government regulations: the strict govt regulations that are applicable to the entire automobile sector would have its impact on the demand of activa. Inflation: An increase in the rate of inflation would lead to the rise in the price of activa and the consequent decline in its demand. Tastes and Preferences of people Increase in cost of production Key dependent factors: As India has a democratic setup and government allows the free market prices to dominate most part of economy the dependent factors are: Demand Supply Profit Relation of Honda Activa with regards to different economic elasticity: Elasticity depends on substitutability, necessity and time duration Price Elasticity of Demand: It means the responsiveness of demand in respect to price of product. The following are the various conditions applicable: A less inelastic situation would occur when the price of activa rises but its demand is little affected. The elasticity here would fall between 0 and1. A more elastic situation would arise if the price of activa reduces and consequently the demand increases in the great proportion. Here it would be greater than 1. Perfectly inelastic situation wont be applicable here as it cant happen that a change in the price of activa wont have any impact in its demand. In case of decrease in prices it would be in great demand and the vice versa. Perfectly elastic situation too isnt possible as even if the price is changed by a relatively small percentage its demand cant reduce to 0. Income Elasticity of Demand (ey): it means responsiveness of demand in respect to income levels of the population. The following are the two types of income elasticities: Negative income elasticity: Its associated with the inferior goods, whereby an increase in income will lead to a fall in the quantity demanded. But the same isnt applicable to active as it falls in the category of luxurious goods. Positive income elasticity: its associated with the luxurious goods. An increase in the income of consumers would lead to rise in the demand of active. Here the elasticity would be greater than1. Cross Elasticity of Demand: It means responsiveness of demand in response

to price of substitute or complementary products. The relation is positive for substitutes and inverse for complementary. If the price of competitors of activa increases the demand for active wil increases and vice versa. And with the ever increasing price of petrol which is a complement of activa its demand is likely to fall in the long run but in the short run there wont be much impact on demand. Short run changes in prices with reference to demand: In short run as the supply cannot be adjusted to the market demand the prices will be volatile. So if the demand for Activa increases the prices will increase but we should keep in mind that in products such as Activa the company does not intend to keep prices very high for the fear that people may opt for substitutes if exorbitant high prices are charged. Similarly when demand decreases the price is reduced along with it the dealers will be encouraged to make more intense advertising and sales efforts. Long run changes in prices with reference to demand: In the long run most of the fixed factors become variable and the supply of Activa can be adjusted keeping the market conditions in mind. If demand is increasing the supply will increase and if demand is decreasing the supply will decrease and the market rates will prevail.