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Vs Comparative Analysis of Strategy: Bajaj & Hero Honda

Over the years, Bajaj and Hero Honda have followed different paths to what they are in the Two-Wheeler industry today. While Bajaj was the unquestioned leader when the mainstay was the scooter, Hero Honda usurped the throne when the market favour turned towards motorcycles. Here we try to analyse how these two players are approaching the future.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


TABLE OF CONTENTS Global Two Wheeler Market........................................................................................................... 4 Global Markets ........................................................................................................................ 4 Indian Market Size and Share ..................................................................................................... 5 Demand Review .......................................................................................................................... 7 Future Growth......................................................................................................................... 7 Margins and profitablity ............................................................................................................. 8 Operating margins increased in 2008-09................................................................................ 9 Selling and advertising costs to increase .............................................................................. 10 Operating margins to increase.............................................................................................. 10 Financing Concerns ................................................................................................................... 10 Changing finance parameters remain unfavourable for two-wheelers ............................... 11 Government Policy.................................................................................................................... 11 Investment Policy .................................................................................................................. 12 Excise and Other Duties ........................................................................................................ 12 Emission norms ..................................................................................................................... 12 Emission control laws ........................................................................................................... 12 Safety laws ............................................................................................................................ 12 Differences in Strategy.................................................................................................................. 14 Hero Honda ............................................................................................................................... 14 Hero Honda retains its leadership position .......................................................................... 16 Player action ......................................................................................................................... 16 Bajaj Auto Ltd. ........................................................................................................................... 17 Major models ........................................................................................................................ 18

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


competition temporarily weakening the competitive position ........................................... 18 Player actions ........................................................................................................................ 19 Micro segmentation of the market: Bajaj............................................................................. 20 Bajaj DTSi: a Sustained competitive Advantage ................................................................... 20 Final Analysis ................................................................................................................................. 22 Bibliography .................................................................................................................................. 23

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


GLOBAL TWO WHEELER MARKET After recording 30 million units in 2003, global production continued to rise annually, touching 40 million in 2006. Production rose to around 48.65 million in 2007. Asia continued to account for around 90 per cent of the global production, growing at a CAGR of around 13 per cent from 2003 to 2007. China recorded the highest production followed by India and Indonesia.

Figure 1: Global Motorcycle Production

GLOBAL MARKETS
CHINA

China's motorcycle production volume surpassed the 25 million mark in 2007. Motorcycles are the second most important means of transportation in China, after bicycles. The country has 155 motorcycle enterprises producing 400 brands. Its motorcycle production and marketing volume has risen by 10 per cent since 1993, when it became the largest motorcycle producer in the world. In 2007, China exported around 8.2 million motorcycles, accounting for around 32 per cent of total sales. There are around 50 main players in the Chinese two-wheeler market with the top 10 players accounting for around 60 per cent of the market.
INDONESIA

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


Indonesia is the third largest two-wheeler market after China and India. The country's motorcycle market grew at a CAGR of 15 per cent between 2002 and 2007. Motorcycle sales were 4.7 million units in November 2007, a growth of around 5 per cent from 2006. Motorcycles serve as a cheap alternative to the unreliable public transport system. Indonesia is trying to phase out 2-stroke engines due to which, over the years, the sale of 2-stroke motorcycles has been declining.
EUROPE

Europe has been a major base for powered two-wheelers. The European market had been dominated by players such as BMW (Germany), Aprilia (Italy), Piaggio Vespa (Italy) and Ducati (Italy), and Asian players such as Honda, Suzuki, Yamaha and Kawasaki. Italy, Germany, the UK, Austria and Spain are the major motorcycle markets of Europe. Countries such as France and Spain manufacture small-engine and utility machines. Conversely, Austria, Germany and the UK produce larger capacity and higher value machines. The demand for two-wheelers in Europe recovered in 2004, after declining consecutively for 4 years. Over the last few years (from 2001), motorcycles are gaining in popularity in Europe over mopeds. Increasing urbanisation, associated growth in suburban areas and longer distances has contributed to shifting demand from mopeds to light motorcycles. INDIAN MARKET SIZE AND SHARE The total size of the Indian two-wheeler industry stood at Rs 288 million in 2007-08, with total volumes of around 80 million units. The industry, which is dominated by Hero Honda, Bajaj Auto and TVS Motors, is divided into three segments - motorcycles, scooters and mopeds. Motorcycles dominate the two-wheeler industry, both in terms of volume and value. In 200708, the share of motorcycles in the domestic two-wheeler market was around 80 per cent while scooters and mopeds accounted for 15 per cent and 5 per cent share, respectively.

Figure 2: Competitive Position of players

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


Hero Honda, Bajaj Auto and TVS Motors, which are the top three players of the Indian twowheeler industry, together accounted for 83.7 per cent of total domestic sales in 2007-08. Hero Honda had a market share of around 45 per cent followed by Bajaj Auto and TVS Motors with market shares of 23 per cent and 16 per cent, respectively. While HMSI increased its market share to around 12 per cent in 2007-08, Bajaj Auto and TVS Motors lost share to Hero Honda and HMSI in 2007-08. HMSI gained around 4 per cent market share during the year on the back of sales growth of around 26 per cent. Though the volumes of Hero Honda models in the economy segment declined, the company was able to maintain overall volumes on account of higher sales in the premium segment. The increase in Hero Honda's market share in the premium segment was at the expense of Bajaj Auto. Further, TVS Motors's market share dipped significantly in 2007-08 with sales declining in all the three motorcycle segments. The company, however, gained market share in the moped segment. HMSI market share rose sharply on account of healthy sales of its executive and premium segment models. Growth in scooter sales also assisted HMSI to gain market share in the overall two-wheeler industry.
60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% HHML BAL HMSI TVS YML REM SMIPL Jul-09 Jul-08

Figure 3 : Motorcycles - Market Share of Key Players 1,00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2007-08 2008-09 2009-10

Figure 4: Two-wheelers: Monthly export trend

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


DEMAND REVIEW The two-wheeler industry witnessed a 4.6 per cent growth in 2008-09 with domestic sales growing at 2.6 per cent and exports growing at 22.5 per cent. The Motorcycles segment recorded a growth of 1.1 percent; Scooters grew by 9.2 per cent, while Mopeds saw a rise of 4.2 per cent in 2008-09.
2007-08 Annual two -7.7 -12 11.6 16.3 32.4 -4.7 2008-09 H1 11.5 12.6 7.2 6.1 27 13.2 H2 -5.5 -9.1 11.1 2.4 18 -3.2 Annual 2.6 1.1 9.2 4.2 22.5 4.6

Domestic wheeler Motorcycle Scooter Moped Exports Total Two wheelers

Table 1: Future Forecasts of Growth in Two Wheelers

Domestic motorcycle sales registered 12.6 per cent growth in the first half of 2008-09. This growth was mainly propelled by Higher farm incomes (on the back of higher MSPs - growth in MSP for paddy, cotton, wheat, sugarcane (UP) and soya bean for 2008-09 was 32 per cent, 37 per cent, 8 per cent, 2 per cent and 48 per cent respectively.) Higher proportion of purchases made on cash sales (due to increased demand in rural areas, where transactions are mostly in cash). Increased personal disposal income in urban areas due to change in income tax slabs.

FUTURE GROWTH The domestic two-wheeler industry is expected to remain flat in 2008-09 and 2009-10 with motorcycle demand expected to remain subdued in the short term (-2 to 0 per cent in 2008-09 and flat in 2009-10). The continuing tight credit scenario, reduced cash purchases and uncertainty over growth of disposable income in the medium term are the key factors impacting the domestic demand for motorcycles in the near term. Lower dependence on finance is likely to result in the continuation of the growth momentum in the scooters segment. CRISIL Research thus expects the domestic demand for scooters to grow at 6-8 per cent in 2008-09 and 2009-10. Over the long term (2008-09 to 2012-13), CRISIL Research expects the domestic two-wheeler industry to grow at around 6-7 per cent. The value size of the domestic two-wheeler industry is

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


likely to increase from Rs 288 billion in 2007-08 to Rs 373 billion by 2012-13. The industry growth is estimated to be lower as compared to a CAGR growth of around 8.5 per cent from 2002-03 to 2007-08, mainly on account of expected slowdown in the demand for motorcycles with probable saturation in urban markets over the next few years. The incremental demand for two-wheelers is likely to be driven by strong growth in the un-geared scooter segment on a relatively lower base and shift in buyer preference towards a family vehicle and continued stable motorcycle demand in the rural market.
Demand (per cent) Review 06-07 Domestic twowheelers - Motorcycles - Scooters - Mopeds Exports Total two-wheelers 11.3 12.7 3.6 7.0 20.6 11.9 07-08 -7.7 -12.0 11.6 16.3 32.4 -4.7 Medium-term 08-09 Flat 0 to -2 6-8 3-4 15 - 16 1-2 Long term outlook 09-10 (5-year CAGR (5-year CAGR 02-03 to 07-08) 08-09 to 12-13) 1-2 8.5 6-7 Flat 6 -8 3-4 10 - 12 2-3 9.3 4.7 4.5 35.5 9.8 5-6 9 - 11 4-5 15 - 17 7-8 Review

Table 2: Two Wheeler Demand Growth

MARGINS AND PROFITABLITY The operating margins for the two-wheeler industry are estimated to have increased by around 100 basis points in 2008-09 on the back of softening raw material prices in the second half and excise duty benefits. Operating margins are estimated to increase by 350-400 basis points in 2009-10, driven by reduction in raw material prices and benefits of increased production from excise-free zones. In 2008-09, RoCE for the industry is estimated to have remained at 2007-08 levels, i.e. 25-26 per cent. We expect this to improve in 2009-10, supported by higher industry returns and low capital expenditure by the players. Key determinants for the margins of the two-wheeler industry are: Change in realisation o Change in prices o Change in product mix Change in input costs Change in other costs

We have analysed these parameters to understand margin movement in the past and estimate it for the future.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


OPERATING MARGINS INCREASED IN 2008-09 Operating margins for the industry is estimated to have increased by 100 basis points in 200809. The effect of the increased cost of raw materials in the first half of the year were offset by the correction in the basic raw material prices in the second half. Moreover, benefits from reduction in excise duty and increased production from excise-free zones helped the twowheeler industry to increase margins in 2008-09. Net sales for the industry are estimated to have increased by 10 per cent in 2008-09. Total volumes for the industry increased by 4.7 per cent whereas average realisation increased by 5.3 per cent. Favourable product mix and shifting of production to excise free zones enables higher realisations in 2008-09

Figure 5: Segment wise share of Motorcycles (CRISIL, 2009)

Motorcycles account for 81 per cent of the total two-wheeler sales. Over the years, there has been an increase in the two-wheeler industry realisations due to a shift in consumer preference from low priced mopeds to motorcycles and from the lower-end Motorcycles segment (Economy segment) to higher-end segments (Executive and Premium segments). In 2008-09, the Economy segment recorded a sharp decline as a result of which, its market share slipped to 26 per cent from 34 per cent in 2007-08. The Executive segment, on the other hand, gained share and rose to 62 per cent from 54 per cent in 2007-08. The changing product mix in favour of the higher segment would impact the realisations of the two-wheeler manufacturers positively.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


Average realisations for the two-wheeler industry are estimated to have increased by 530 basis points in 2008-09. 43 per cent of the increase in realisation was on account of price increases effected during the year, whereas the shift of manufacturing units to excise free zones and product mix changes resulted in 32 per cent and 25 per cent increase in realisations in 2008-09, respectively. Raw material costs for the two-wheeler industry declined by around 100 basis points in 2008-09. Prices of basic raw materials drastically increased in the first half of 2008-09. Steel prices rose by around 28 per cent while aluminium prices increased by 6-7 per cent during the first half of 2008-09 vis--vis the same period last year. The effect of increased cost of raw materials in the first half of the year were offset by the correction in the basic raw material prices in the second half. Other expenses as a per cent of sales remained constant in 2008-09.

SELLING AND ADVERTISING COSTS TO INCREASE Advertising, selling and distribution expenses are estimated to increase by 100-150 basis points in 2009-10. With moderate growth expected to continue in the overall demand for twowheelers, higher model launches and players' initiative to increasingly enhance the distribution network in rural areas and attract customers would increase the overall selling expenses for two-wheeler players. OPERATING MARGINS TO INCREASE In view of the above factors, operating margins for the two-wheeler industry are estimated to increase by 350-400 basis points in 2009-10. With reduction in raw material prices, the benefit of production from excise-free zones and change in product mix, the players will have the flexibility of reducing prices by 2-3 per cent further (after assuming a 1 per cent price reduction) in order to boost demand. Return on capital employed (RoCE) of the two-wheeler industry has declined over the past few years, but it continues to remain healthy at 25-26 per cent. We expect the RoCE of the industry to improve by 2-3 per cent in 2009-10 due to higher industry returns and low capital expenditure by the players. FINANCING CONCERNS The two-wheeler finance industry, valued at Rs 80 billion, is estimated to have declined by 29 per cent in 2008-09 on account of rising delinquencies and constrained recovery regulations. Higher operating costs due to lower ticket size and rising credit losses (due to wilful defaults

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


and frauds) have made two-wheeler financing less attractive for the financiers. This has led to financers significantly curtailing their exposure to the two-wheeler finance market. Due to higher delinquencies and rising cases of wilful defaults, some players made an exit from markets like UP (UP alone accounts for 12 per cent of the motorcycle sales, which is the highest for any single state).

Figure 6: Motorcycles - Financing Pattern

CHANGING FINANCE PARAMETERS REMAIN UNFAVOURABLE FOR TWO-WHEELERS Over the past few years, finance penetration for two-wheelers fell significantly. It reduced from 47 per cent in 2005-06E to 28 per cent in 2008-09E. This can be attributed to both, reductions in the percentage of vehicles financed and the average LTV for two-wheelers. The proportion of two-wheelers financed was 64 per cent in 2005-06E, which came down to 40 per cent in 2008-09E, average LTV also declined and reached 69 per cent in 2008-09E from 73 per cent in 2005-06E. The rate of interest has been on a rise since 2005-06. It was 18 per cent then and has reached 24 per cent in 2008-09E. GOVERNMENT POLICY From 1948 to 1991, the Indian automobile industry was governed by regulations on licensing, production, pricing and foreign investments. However, with the introduction of the New Industrial Policy of 1991, the government abolished industrial licensing for the entire automobile sector and allowed foreign investment. Since then, the ownership and utilisation of motor vehicles in India has grown sharply.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


INVESTMENT POLICY According to the Auto Policy 2003, 100 per cent foreign direct investment (FDI) is allowed in companies through the automatic approval route. The policy aims to promote a globallycompetitive auto industry in India, and develop it as an international centre for sourcing auto components, and manufacturing small cars, tractors and two-wheelers. EXCISE AND OTHER DUTIES Excise duty accounts for a significant portion of the final price of two-wheelers. Hence, changes in duty rates have an impact on demand as well. The Union Budget 2008-09 announced the reduction of excise duty on two-wheelers from 16 per cent to 12 per cent. The government further cut excise duty on two-wheelers by 4 per cent on December 9, 2008. Hence, the effective rate of excise duty applicable to two-wheelers would be 8.3 per cent (8.0 per cent excise duty plus 3.0 per cent education cess). The state governments charge value-added tax (VAT) or local sales tax and other levies such as Octroi. The change from local sales tax to VAT has benefited the two-wheeler industry in the form of lower tax incidence EMISSION NORMS Emissions from a vehicle depends on the technology used, its fuel quality, maintenance and also on traffic management. For instance, bad roads increase pollution and vehicle operation cost. EMISSION CONTROL LAWS To control pollution, the government has laid down emission norms for various categories of vehicles. With the introduction of new emission norms for two-wheelers, the government implemented Euro II from April 1, 2005. All the players have already upgraded their product technology to comply with the new norms. Considering the large population of two- and three-wheelers, and their contribution on the ambient air quality in cities, Euro III emission norms (Bharat Stage III) are recommended to be implemented no later than April 1, 2010. SAFETY LAWS

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


Vehicle manufacturers have to comply with certain technical standards for the production, and later, performance of its vehicles. Standards are specified for various parts and the complete vehicle in order to ensure the safety of drivers and pedestrians. After the prototype of the vehicle has been tested by government-approved research and testing agencies, a compliance certificate has to be obtained before a new model is launched. This certificate is filed with the transport commissioner of each state. Only vehicles that are tested are registered by the transport commissioner.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


DIFFERENCES IN STRATEGY Financing pattern differs among players of the two-wheeler industry. Players like TVS and Bajaj are highly dependent on finance, whereas Hero Honda is the least dependent. Hero Honda's sales mix is skewed towards the rural markets with around 60 per cent of its vehicles sold there, while Bajaj and TVS sell around 40 per cent each, in the rural markets. Bajaj's captive finance arm, Bajaj Auto Finance, has enabled higher finance penetration in overall Bajaj volumes. Bajaj and TVS' sales declined in 2008-09 due to higher dependence on finance (as the financing situation deteriorated) and the regional mix of these players (as purchases in the rural markets are mainly made in cash). HERO HONDA Hero Honda was constituted in 1983 as a joint venture between Hero group and Honda Motors Co. Ltd. Japan (Hero Honda Official web site). The 80% of the two-wheeler market was driven by geared scooters. The market for Motor-cycles was in its nascent stage. At the same time Yamaha and Suzuki also came to India as separate Joint Ventures. Motorcycles were then associated more with youngsters and those who seek power. Hero-Honda approached the market very differently, its first bike CD100 which had the technology driven by Honda, Japan came in 1985 was more fuel efficient. The market was segmented as power seekers youngsters who then followed brands like Yamaha and Suzuki and family men who were inclined towards scooters. The CD100 was targeted to the consumers who were in between the two segments. With better fuel efficiencies the sales of its model picked up and were able to sell 1,00,000 bikes in less than three years (Hero Honda Official web site). The motorcycle was promoted with the tag line Fill it. Shut it. Forget it (Hero Honda Official web site). Hero- Honda was a perfect example of synergy, with technology driven by Honda which was redesigned in India to meet the Indian standards and marketing network of Hero Group. By 1998 it had produced 20,00,000 bikes and opened a new manufacturing unit at Gurgaon, Haryana. Though they were market leaders in Motorcycle segment they were still not the leaders in two-wheelers. The company has been the world's largest manufacturer of two-wheeled motorised vehicles since 2001, when it produced 1.3 million motorcycles in a single year. Further, Hero Honda's Splendor model is the world's largest selling motorcycle. The company is the market leader in motorcycles as well, with sales of over 3 million, accounting for market share of around 50 per cent in 2007-08 (Pande, 2004).

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


In 2001, Hero Honda launched a CRM programme called 'Passport', which was a massive success, signing up over half a million customers within eight months. Under the programme, a customer got a 'passport' booklet at a nominal fee of $2 (now $3). This entitles owners to all the benefits, such as free insurance cover, prizes, and tickets for events sponsored by the company and other discounts for three years. More than that, a Passport member can accumulate points for each transaction at the company's retail outlets. Every referral that they generate earns bonus points which can be redeemed at regular intervals for gifts or discounts (Pande, 2004). With the end of No Competition Agreement in 2000, Honda was allowed to launch its motorcycles in India, which led to cannibalisation as well as Technological drawback for Hero Honda. In 2004, Hero and Honda extended their technical collaboration agreement for another ten years. Though it is an advantage for Hero-Honda but Hero-Honda since then has only come up with one new engine Quantum Core Engine, mainly the new models have been based on upgraded versions of old engines, whereas the major rival Bajaj has been concentrating more on the new engines and other latest technology. The promoters today hold approximately 55 per cent (Hero 28.8% and Honda 26%) of the company's equity. According to Pawan Munjal, CEO, Hero Honda Group, by reading the market correctly, Hero Honda was able to finally topple long-standing scooter king Bajaj in 2001. To recover lost ground, Bajaj drew on technology from Kawasaki and jazzed up its portfolio, emphasizing premium motorcycles. For a while it looked as if a newly revved-up Bajaj would reclaim the crown (Forbes, 2009). But the downturn played to Hero Honda's advantage. "Bajaj's strategy of moving away from the lower segment to concentrate on high-end bikes backfired when the economic cycle turned and consumers got jittery. Hero Honda seems to have all the right products for recessionary times," observes V.G. Ramakrishnan, senior director for automotive and transportation at consulting firm Frost & Sullivan India. It also helps that Indian bikers have come to regard Hero Honda bikes as the most fuel-efficient in the market (Forbes, 2009). Hero Honda already had a rural presence, but to tap into it with greater vigour he set up a separate sales division within the company with the mandate to reach "every village, every home." Today company dealers have a field force of 500 rural sales executives. ." So far, so good. Rural sales contribute 40% to Hero Honda's overall total, up from 35% in 2007. Pawan plans to add 600 more sales points this year to the existing 3,500. Rural markets, he reckons, will account for half of all sales within a couple of years (Forbes, 2009).

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


HERO HONDA RETAINS ITS LEADERSHIP POSITION Hero Honda maintained its leadership position of being India's largest motorcycle manufacturer. Although motorcycle sales declined by 12 per cent in 2007-08, the company was able to sustain its volumes at 2006-07 levels. Its domestic market share therefore rose from 48 per cent in 2006-07 to 55 per cent in 2008-09. This robust market position has provided the company adequate sales and bargaining power with suppliers, resulting in high profitability (CRISIL , 2009). The company continued its dominant position in the executive segment with a market share of around 69 per cent. In 2007-08, it increased the share in the premium segment from around 14 per cent in 2006-07 to 22 per cent. The key brands shoring up the company's volumes include Splendor and its variants and Passion Plus in the executive segment, and Hunk and CBZ X-treme in the premium segment (CRISIL , 2009).

Figure 7: Hero Honda - Estimated market share in the motorcycle sub-segment. Source (CRISIL , 2009)

PLAYER ACTION
KEY MODEL LAUNCHES

In October 2007, the company launched a premium segment motorcycle, the 150cc Hunk, at a price Rs 55,000. A limited edition variant of its 100cc motorcycle Splendor Plus was launched in 2007 for Rs 41,250. Hero Honda rolled out four variants in October 2008, i.e. self-start versions of the 100cc bikes Passion, (Passion Pro Power Start) and Splendor NXG, and the new CBZ X and

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


Pleasure (100cc gearless scooter). The Passion Pro Power Start is priced at Rs 44,000 (exshowroom Delhi) and Pleasure at Rs 36,950 (ex-showroom Delhi) (CRISIL , 2009).
GLOBAL PLANS

Hero Honda's presence in the export market is limited. The presence of its technology partner, Honda Motor Co, in the ASEAN and Latin American regions and other large markets restricts Hero Honda's entry into these markets. As a result, the company's exports are limited to Bangladesh, Sri Lanka and Colombia (CRISIL , 2009)
CAPITAL EXPENDITURE

The company is planning to expand its Hardwar plant capacity by around 1 million units per annum by 2010. This brownfield expansion would require an investment of around Rs 1.5 billion. The company also has plans to set up ancillary units at its Hardwar plant at a cost of Rs 15 billion (CRISIL , 2009). BAJAJ AUTO LTD. Bajaj group was founded by Jamnalal Bajaj in 1926, and was consolidated by Kamalnayan Bajaj (Bajaj Auto Sites). Rahul Bajaj present chairman of the group took charge of the business in 1965. It was importer of Vespa Scooters in the beginning. In I970, Bajaj Group was able to get the license for manufacture of Scooters in India. In 1972, Bajaj launched its first home made scooter- Bajaj Chetak. It was the major Scooter manufacturer in India as well as the largest 2wheeler player in the country. In mid-80s company launched its first motorcycle with technical collaboration with Kawasaki. In 1995 the market share of total 2-wheeler segment was 48%, company focused mainly on manufacture of scooters. During 1998, company for the first time lost its market share from 48% in 1995 to 40.5%. It was the same time company was planning to shift its concentration to manufacture of Motorcycles from scooters. The manufacturing unit were fully automated and since the shift the company has been concentrating on R&D. Company also changed its marketing tagline from Humara Bajaj to Distinctly Ahead, clearly emphasising on the technology. With the launch of Hero Honda CBZ in 1996 a new segment of premium bikes was discovered. The growth rate was high and was expected to grow further. Bajaj taking the advantage of its R&D resources concentrated most in the executive segment.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


The company came up with the first Indian Dual spark plug technology motorcycle as Bajaj Pulsar DTSi, the technology provided better fuel- efficiency as well as better torque. Special pro-biking showrooms targeting the youth who are bike freaks were launched. According to the experts, the strategy to target only the upper segment is not the right strategy in present times, especially during the economy slow down. The company has also started concentrating in the executive segment which is the largest segment and comprises approximately 63% of the total market share. The bikes launched though have not been able to dent the market share of the leader. Another issue concerning is the number of authorised dealers and service stations. As compared to Hero Honda Bajaj has fewer authorised dealers and half the number of service stations (CRISIL, 2009). Bajaj Auto has a tie up with Bajaj Finance, where as Hero Honda has tie-up with Banks and promotes Loan mela in villages.

Figure 8: Bajaj Auto - Estimated market share in the motorcycle sub-segments (Source: CRISIL Research)

MAJOR MODELS Bajaj XCD 125 DTS-Si, Pulsar 150 DTS-Fi, Platina, Platina 125, Discover 135 and CT 100. COMPETITION TEMPORARILY WEAKENING THE COMPETITIVE POSITION Bajaj Auto is the second largest player in the two-wheeler industry. Keeping abreast with the structural changes witnessed in the sector, the company shifted from being a predominantly scooter manufacturer to a motorcycle manufacturer. Bajaj Auto entered the motorcycle

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


segment in partnership with Kawasaki. But the turnaround came after the successful launch of the Pulsar in the premium segment in 2001-02. However, after recording robust growth in the motorcycle segment over the past few years, Bajaj Auto, lost market share from around 33.5 per cent in 2006-07 to 32.7 per cent in 2007-08. This was primarily on account of the company losing market share of around 4 per cent in the premium segment where it is the leader. The company lost market share to Hero Honda's CBZ Xtreme and Hunk (launched in October 2007). Bajaj Auto launched XCD in the executive segment in September 2007. However, it was unable to grab a significant share due to which the company lost marginal share in the executive segment in 2007-08. With the economy segment (Bajaj Auto leader) witnessing a significant decline in sales, Bajaj Auto has decided to move out of 100cc segment and focus on the 125cc segment. It launched Platina 125 in September 2008 with plans to launch a further two models in the 125cc segment in 2008-09. PLAYER ACTIONS
MODEL LAUNCHES

In September 2007, the company launched XCD 125 DTS-Si, priced at Rs 41,000. In July 2008, it launched a new variant of the 135cc motorcycle Discover 135 DTS-I priced between Rs 46,248 and Rs 51,895. In September 2008, the company launched Platina 125 DTS-I, priced at Rs 39,000. The company launched XCD-135 DTS-I motorcycle in January 2009 priced at Rs 45,000 (ex-showroom Delhi).
FUTURE MODEL LAUNCHES

The company is planning to launch two sports motorcycles in collaboration with Kawasaki - a 150cc motorcycle and the Ninja 250 - in India in 2009-10. Bajaj Auto is also planning to introduce two more motorcycle models with engine capacity above 125cc in collaboration with KTM Power Sports expected to hit the market in 2009-10. Bajaj Auto is also planning to launch a heavy un-geared scooter, Blade, in 2009-10.
GLOBAL PLANS

The company's key export markets are Sri Lanka, Bangladesh, Colombia, Peru, Egypt, Bangladesh, Philippines and the UAE. Bajaj Auto also established an exclusive network to sell Pulsars assembled in Indonesia through its subsidiary PT Bajaj Indonesia, giving the company entry into the key markets of Jakarta, Java, Bali and Sulavesi. In 2007-08, the company also entered African countries such as Angola, Sudan and Uganda. Further, it has plans to develop

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


higher end products (125cc to 250cc), for which it has acquired a 25 per cent stake in Austrian two-wheeler maker, KTM Power Sports AG, through its wholly-owned Netherlands-based subsidiary, Bajaj International Holdings BV. The KTM Group will provide know-how to Bajaj Auto for developing higher end motorcycles which would be sold in India and other parts of Asia and Europe.
CAPITAL EXPENDITURE

Bajaj Auto does not have any capacity expansion plans in the medium term. The company has commenced production from April 2007 at its Greenfield plant at Pantnagar, Uttarakhand, with a production capacity of 0.5 million units. The capital expenditure over the medium term would be mainly for setting up pro-biking showrooms across India and funding research and development (R&D) for which it would incur Rs 2.5-3.0 billion annually for a period of 2-3 years. MICRO SEGMENTATION OF THE MARKET: BAJAJ When Hero Honda took market leadership way back in 1999-2000, it made Bajaj took notice. Bajaj was suffering from Marketing Myopia and could not see limited days of the Scooter market. Thats why it had to play catch up game and always remained a Challenger. With Pulsar proving to be its biggest hit and most successful model, Bajaj seems to have found out a newer way out to survive in the market, Micro segmenting. It first launched a 125 cc bike (Between 100cc and 150cc, to create an entire new bike segment). Then when this sub-segment stagnated it created another niche- the 135 cc segments (between 125cc and 150cc). It again went ahead and launched Pulsar in 180cc segment by creating this new segment. However, Honda fit in and copied the Bajajs approach by launching Unicorn as a 165cc bike (between 180cc and 150 cc). With chances of creating market niches becoming less day by day and multiple new brands not clicking, Bajaj needs to now focus on its stronghold segment of 150cc. gradually, difference between sub segments will blur and the trick lies in getting right Positioning in minds of customers. BAJAJ DTSI: A SUSTAINED COMPETITIVE ADVANTAGE An important feature to note is that motorcycles market is huge market for each player to exist profitably and so Economies of scale rules the game. Capacity building is an important feature to rule market at lowest 100 cc end. In spite of Hero Honda having limited exposure in various exports markets and Bajaj clearly growing due to export segments growth, still Bajaj seems incapable enough to fight Hero Honda on price front.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


With its focus on building technology platform and R&D, as shown by its DTSi engines, Bajaj clearly seems to be caught up in two worlds. In India, it is quite clearly entrenched in the 125cc to 180cc market where features like Styling, power and brand image are the important Choice making factors. While its export market revolves around its cost advantage platform in export countries, still, here it is no match for Chinese exporters who can any day compete against any manufacturer on price front. Therefore, its focus on developing the technology platform so that it becomes, Inimitable becomes an important decision for Bajaj to survive in future. Technology in form of fuel efficient engines therefore becomes it Core competitive advantage, something which it protects fiercely (it won lawsuit against CC-VTi technology a copy of DTSi against TVS). Still it seems to have neglected a bit its competitive advantage as it announced plans of entering in 100cc segment again at lower price points, by importing Chinese bikes an redesigning them. It does show the urgency in getting numbers in recessionary phase which can be dangerous from long term point of view.
MAKING DTSI THE GENERIC NAME

Bajaj recently came up very sophisticated, techno whiz ads featuring and stressing the DTSi utility and need in every bike. This goes with establishing and connecting Engine with DTSi. Tomorrow if they are able to associate two words and make DTSi generic for category of bikes, this will go long way in differentiating Bajaj with the rest. Therefore, its expected competition with Honda Group, a well entrenched leader in engines and superior technology in India and abroad can decide who the fittest survivor and leader is. A lot depends on Hero Hondas ability to counter and retain its market leadership, can it sustain its volumes hold and leadership in low end bikes. Can it retain its technological exchange contract with Honda? Also, how long would Honda hold back its superior technology and wait for opportune time to arrive.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


FINAL ANALYSIS It may seem that Bajaj has done strategy flip-flop lately, as it had decided to exit the entry level segment in 2006 (where it had Platina and CT100 then) and deciding to concentrate on the executive and the premium segment (Bajaj Auto may soon exit 100 cc segment, 2007), but now has launched the new Discover 100cc thereby re-entering the market. But seen from a different perspective this may just be a continuation of the overall strategy of being present in markets where it can be a winner or the leader. In 2006-07, when Bajaj stopped the production of CT100, the bike wasnt the best seller in the category, and all the leading slots of the category were being held by Hero Honda. Bajaj was waging a losing battle with its offering of CT100 and Platina. Bajaj exited so that it could concentrate on its core competence of technology and develop a bike for this category which could be a winner. They kept working on the higher-end Discover platform to come up with its variant of a 100 cc bike and launched it in this July. And the success of the launch can be gauged from the fact that 48,000 units of the new Discover 100cc bike were sold in the month of August (within a month of the launch) (Editor, 2009). This can be compared to the total size of Economy segment for the month of July which was just 1.1 lakh. This can mean that either the new bike has grown the Economy segment or it has made Executive buyers come to this segment, both ways it means maybe Bajaj has finally got act right and has bike that can challenge the dominance of Hero Honda in both the Economy and Executive Segment. Whereas in the Premium segment of the market, Bajaj already plans to increase its dominance of 43% market share by the recent re-launch of the Pulsar 220 and the eminent launch of Ninja 250. Hero Honda though the market leader at present looks at its marketing, as the competence, but marketing cannot be a competence for long. The sharing of technology with Honda is not yet clear, furthermore, Honda is planning to launch its 100cc bike by the end of the year, which will further cannibalise Hero Hondas market share (Baggonkar, 2009). Hero Honda has not come up with any new engine since Quantum core in 2005 and Upgradation to fuel injection technology, whereas the competitors, such as Bajaj, TVS and Honda have been continuously working on the same. At this point it is very important for Hero Honda to increase its innovation capability and at the same time maintain its marketing leadership. Hero Honda has steadfastly remained on its traditional marketing strategy whereby it uses it better marketing network to maintain its dominance in the Indian Two wheeler market, therefore in the next few years it will interesting to see how the strategies of both the players develop to be ahead in the race.

Comparative Analysis of Strategy: Bajaj & Hero Honda 2009


BIBLIOGRAPHY Baggonkar, S. (2009, April 28). Honda, Hero Honda further ties for future launches. Retrieved September 06, 2009, from Bussiness Standard: http://www.businessstandard.com/india/news/honda-hero-honda-further-ties-for-future-launches/356466/ Bajaj Auto may soon exit 100 cc segment. (2007, March 19). Retrieved September 4, 2009, from Financial Express: http://www.financialexpress.com/news/bajaj-auto-may-soon-exit-100-ccsegment/194382/ Bajaj Auto Sites. (n.d.). About Company. Retrieved September 06, 2009, from Bajaj Auto Website: http://www.bajajauto.com/about-bajaj.asp CRISIL . (2009, January). Hero Honda. Retrieved August 29, 2009, from Crisil Two-WheelerAnnual Review: www.crisilresearch.com CRISIL. (2009, June 30). Demand review and outlook. Retrieved August 29, 2009, from Crisil Research: https://www.crisilresearch.com/ResearchProWeb/control/usagetracker?usagestring=DisplayFu llReport:ReportTree&id=61051 Editor. (2009, September 3). Bajaj 100cc Discover DTS-Si sets record by selling 48,000 units in August. Retrieved September 4, 2009, from Wheels Unplugged: http://www.wheelsunplugged.com/ViewNews.aspx?newsid=4221 Forbes. (2009, June 08). Every Village, every Home. Retrieved August 30, 2009, from Forbes: http://www.forbes.com/forbes/2009/0608/080-honda-hero-autos-every-village-everyhome.html Hero Honda Official web site. (n.d.). Key Milestones. Retrieved August 30, 2009, from Hero Honda Official Website: http://www.herohonda.com/co_milestones.htm Pande, B. (2004, December 17). Ebscohost: hero Honda. Retrieved August 30, 2009, from Ebscohost: http://web.ebscohost.com/ehost/detail?vid=1&hid=9&sid=d5775d62-7769-423493e602149a8ed548%40sessionmgr4&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=171 64058