Jedi Knight

IIPM, GURGAON

The king in premium bike segment. Now, it has decided to attack Hero Honda’s 100cc domain.

TThere is a paradigm shift in Bajaj Auto’s boardroom and the company’s decision-making process. Whether it is the launch of Pulsar 220 DTS-Fi & XCD 125 bikes, or the ‘patented’ battle with TVS, Bajaj is no longer ‘hamara’ or ‘tumhara’ anymore. Today, it has made the transition from being a scooter manufacturer to a motorcycle maker. It has shed its image of selling low-priced two-wheelers and is more associated with premium power-bikes. Bajaj is clearly the ‘hunk’ today.

The launch of the Pulsar 200 and 220 consolidated Bajaj’s domination in the premium motorcycles segment. In fact, the two launches were mandatory to ward off the challenge from Hero Honda’s Karizma (223cc), the only model in the sports bike category. However, Pulsar remains the undisputed leader in the premium category. With a market share hovering close to 62%, Bajaj sold nearly 5,50,000 premium bikes between April-October 2007-08.

Bajaj started its scooters-to-powerbikes transformation in the early 1990s, but the real brand association with powerful and sporty bikes is less then a decade old. Along with collaborations with Japan’s Kawasaki and Europe’s KTM, the company is on its way to become the country’s first super bike manufacturer. The innovative ‘Pro-Biking’ stores have proved to be a rage in urban India with customers connecting powerbikes with Bajaj. However, Hero Honda has virtually monopolised the smaller, 100cc bike segment. Its Splendor is a super-successful model and the company continues to leverage on it as it launched Splendor+ and Splendor NXG. It appears that Hero Honda will remain the leader in motorcycles for some time as volumes will always be higher in the low-priced, entry segments. In 2007-08, Bajaj’s sales of 100cc bikes were just a fourth of Hero Honda’s. But Bajaj is not willing to give up easily. It launched XCD 125 DTS-Si. Exceeding expectations, the model went on to get close to 60,000 buyers in the past two months ago, largely because of the affordable price tag. Says Amit Nandi, GM (Marketing), Bajaj Auto, “The XCD’s compelling package of outstanding fuel efficiency, 125cc performance and fresh styling, has received very high degree of consumer acceptance. Our ability to sell is only constrained by our inability to produce more. On the asis of the market response and sales, XCD is proving to be a knockout performer.”

In many ways, the XCD has changed the existing rules of the 100cc game. Till recently, the 100cc segment was synonymous with low prices and lower maintenance and mileage costs. But Bajaj got all analysts wrong by coming out with a larger capacity engine, and a radical product that had everything a 100cc product has, in addition with more style and power. The XCD eradicates the need to compromise between power and mileage with its eclectic marriage between ingenuity and cutting edge technology.

Bajaj Auto managers contend that “the customer is losing interest in 100cc bikes, which will soon lead to the demise of this segment. We are not exiting the 100cc customers, we are exiting 100cc products by offering the buyers a better product.” The company’s main focus is on its DTS-Si technology that promises to deliver future growth. However, auto-expert Murad Ali Baig sounds a word of caution: “Bajaj has been innovative and the DTSi technology has been popular. But the sheer reliability of Hero Honda models, coupled with excellent re-sale prices, keeps it ahead. Hero Honda has not failed, even if it is less glamorous.”

For Bajaj, a not-so-authoritative 24% share in the entry segment is discomforting. However, things are looking up a bit after the XCD launch. “Many dealers ran out of stocks of Platina and XCD. What is hugely encouraging is that this demand upsurge continues even after festive season, with estimatedly 20,000 customers in queue for XCD,” according to Bajaj company. Bajaj is satisfied with its progress in higher segment bikes.

Archrival Hero Honda (which started the premium game) is in the market but things are turning out difficult for the bike giant. Its premium offerings like CBZ Xtreme, Karizma and the recently-launched Hunk 150, have not blazed the markets and Hero Honda has found it tough to better its 10% market share in the premium segment. “Hero Honda dominates the 100cc market that comprises 65% share of the overall market. It’s old, but reliable, brands still sell. Expect at least four new models,” says Baig.

Together with Bajaj Finserve, one of the largest financial companies in terms of capital reserves, Bajaj Auto has successfully established itself as an admired bike manufacturer in India. It is a company, which changed the two-wheelers market dynamics. After being a slow starter in the bike segment, and after being left way behind by Hero Honda, it has found the guts and the products to fight the might of Hero Honda.

However, the biggest challenge for Bajaj is to find a way to play the volumes game, as it did in the scooters’ category. Since it has been forced to focus on premium bike segments, the unit sales don’t provide adequate economies of scale. And that has a negative impact on costs, prices, and profitability. The company’s think tank feel that the XCD will enable it to boost volumes, but then the company will need to add more models and variations in the same cc category.

At the same time, Bajaj is fighting a battle with TVS over who has the right to the new DTS-Fi technology. Since the continuing popularity of the Pulsar is because of this technology, any legal hiccups can stop Bajaj’s dream ride in the premium segment. TVS has claimed that the technology was developed by it and, hence, it has the right to its patent, therefore, Bajaj can’t use the technology for its models. If Bajaj loses the case, it will mean the end of the Pulsar. The pulse is running fast in Bajaj’s boardroom.

Written by Karan Mehrishi, with inputs from Sachin Bharel

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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