Two-Wheeler Automobile Industry in India

Introduction to Indian automobile industry

The automobile is one of the largest industries in the global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognized as one of the drivers of economic growth. During the last decade, well-directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy. Aggressive marketing by auto finance companies has also played a significant role in boosting automobile demand, especially from the population in the middle-income group. A nation's economy is well known for its transport system.

For instant and rapid growth in the economy, a well-developed and well-networked transportation system is essential. As India's transport network is developing at a fast pace, Indian Automobile Industry is growing too. Also, the Automobile industry has strong backward and forward linkages and hence provides employment to a large section of the population. Thus the role of the Automobile Industry is very essential in the Indian economy. Various types of vehicles are manufactured by the Automobile Industry. Indian Automobile Industry includes the manufacturing of trucks, buses, passenger cars, defense vehicles, and two-wheelers.

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Two-wheeler manufacturing is dominated by companies like TVS, Honda Motorcycle & Scooter India (Pvt. ) Ltd., Hero Honda, Yamaha, Bajaj, etc. The automobile industry in the country is one of the key sectors of the economy in terms of the employment opportunities that it offers. The industry directly employs close to around 0. 2 million people and indirectly employs around 10 million people. The prospects of the industry also have a bearing on the auto-component industry which is also a major sector in the Indian economy directly employing 0. 25 million people.

BCG Matrix Representation of the Automobile Sector among various Sectors

In an economy, different industries are present and different industries have different growth rates as compared to the growth of the economy. In an economy, there are a number of major industries and they all occupy different positions in the BCG matrix according to their growth and contribution to the economy. In the Indian economy, some of the major sectors are FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology, and retail sectors and these can be placed in different positions in the matrix as shown below:

Industry BCG matrix automobiles

The relative market share BCG matrix is used to determine the relative position of the companies of an industry or different SBUs of any institution, in terms of the market growth rate and the market share of the company in the industry. In the Indian automobile sector, the major players are Maruti Suzuki Limited, General Motors, Mahindra and Mahindra, Tata Motors, Hero Honda, and Bajaj Auto.

In the BCG matrix, the companies are placed in one of the following four categories: Star, Cash Cows, Dogs, and Question marks. In the Stars we place the companies with high market growth and high market share, cash cows are the companies who have low market growth rate and high relative market share, and the category of the question marks include the companies with low relative market share and high market growth rate and dogs include the companies who have low relative market share and low market growth rate.

Overview of two-wheeler sector

Two-Wheeler Industry

Indian two-wheeler contributes the largest volumes amongst all the segments in the automobile industry. This segment can be broadly categorized into 3 sub-segments viz.; scooters, motorcycles, and mopeds. In the last four to five years, the two-wheeler market has witnessed a marked shift towards motorcycles at the expense of scooters. In rural areas, consumers have come to prefer sturdier bikes to withstand bad road conditions. In the process the share of the motorcycle segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17% during the year 2008-09.

The Euro emission norms effective from April 2000 led the existing players in the two-stroke segment to install catalytic converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty on motorcycles has been reduced from 32% to 24%, resulting in price reduction, which has aided in propelling the demand for motorcycles. Within the two-wheeler industry, the motorcycle segment grew at a phenomenally high rate of 35% against a deceleration of 3% for scooters and 27% for mopeds. In fact, the motorcycle has been taking away the share of scooters and mopeds in a 4. million two-wheeler market and surging ahead with its market share of 68%.

The increasing demand from semi-urban and rural segments may have caused this positive shift toward motorcycles. Also, easy credit coupled with a low-interest rate regime, constrained personal transport, increasing income levels in the middle class and higher aspirations of young people all seem to be the factors responsible for such high growth in two-wheelers. The growth in two-wheelers has been robust enough to counter the slowdown and other factors constraining the overall business activity in the country.

Also, the rationalization of excise duty in the Union Budget 2002-03 had a positive impact on the demand for motorcycles. We also expect motorcycles to continue to lead the two-wheeler segment like in all other Asian countries. Available forecasts suggest that this trend would continue for another couple of years and the industry would record nearly double-digit average annual growth up to 2006. During the year, there have been important developments in the two-wheeler industry. The competition has strengthened though there are hardly any new entrants into the industry.

There is an increasing emphasis on price and this has led to cost-cutting efforts all across the industry, thereby, making the customer an ultimate beneficiary. The trend also saw the introduction of new motorcycles with capacities ranging from 100 to 180cc bikes. We anticipate that many more new models will be launched during the year and provide customers with plenty of choices at competitive prices. Businesses cannot consistently grow at 25-30 percent. Each business has a tendency to taper and plateau after attaining a particular size. An annual growth rate of 10-12 percent over a period of time is extremely healthy.

The TCS study rankings are conducted at the motorcycle segment level to provide comparisons among similar groups of motorcycles. Motorcycles ranking highest in their respective segments for TCS are Hero Honda CD100 SS (best standard motorcycle segment); Hero Honda Splendor (best executive motorcycle segment); Bajaj Pulsar (best premium motorcycle segment); and Royal Enfield Bullet Electra (best cruiser motorcycle segment). The feeling of freedom and being one with Nature comes only from riding a two-wheeler. Indians prefer the two-wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments.

Indian streets are full of people of all age groups riding two-wheeler. Motorized two-wheelers are seen as a symbol of status by the populace. Two wheelers in India are the second largest producer and manufacturer of two-wheelers in the world. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50s. The Automobile Products of India (API) started manufacturing scooters in the country.

Bikes are a major segment of the Indian two-wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. In the initial stages, the scooter segment was dominated by API; it was later overtaken by Bajaj Auto. Although various government and private enterprises entered the fray for scooters, the only new player that has lasted till today is LML. The motorcycle segment was initially dominated by Enfield 350c bikes and Escorts 175c bikes. The two-wheeler market was opened to foreign competition in the mid-80s.

And the then market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. With the availability of fuel-efficient low-power bikes, demand swelled, resulting in Hero Honda - then the only producer of four-stroke bikes (100cc category), gaining a top slot. The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These two players initially started with the assembly of CKD kits, and later on, progressed to indigenous manufacturing.

In the 90s the major growth for the motorcycle segment was brought in by Japanese motorcycles, which grew at a rate of nearly 25% CAGR in the last five years. The industry had a smooth ride in the 50s, 60s, and 70s when the Government prohibited new entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s. The industry witnessed a steady growth of 14% leading to a peak volume of 1. 9mn vehicles in 1990. In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0. mn vehicles.

Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94. Hero Honda showed a marginal decline in 1992. The reasons for a recession in the sector were the incessant rise in fuel prices, high input costs, and reduced purchasing power due to a significant rise in the general price level and credit crunch in consumer financing. Factors like increased production in 1992, due to new entrants coupled with the recession in the industry resulted in companies either reporting losses or a fall in profits. Two-wheeler fleet composition in India:-

Structure of the two-wheeler industry

• Mopeds - Over the last 15 years, moped’s contribution in overall 2-wheelers has declined significantly and now it remains a marginal category with just one manufacturer for the product. Its contribution to the 2-wheeler industry now stands at 5% and we expect that this segment will continue to be marginalized. The only player in this segment is TVS Motor.
• Scooters - The advent of fuel-efficient motorcycles in the Indian 2-wheelers industry led to the decline of Scooters. However, over the last five years, it has made a recovery and is emerging as a niche segment targeted toward women commuters.

One of the reasons for this is the increasing need for mobility for women commuters,, especially in urban areas due to a a higher number of college-going girls and greater participation of women in the urban workforce. The product itself has gone for a complete revamp and now this category mainly consists of gearless products. This segment is now dominated by Japanese manufacturers with HMSI having the leadership. HH, which is a late entrant in this segment, has also cornered a sizeable market share in the scooter segment. Another development in this segment is the launch of battery-operated scooters. However, given the high replacement cost for the batteries, this has remained a marginal segment.

• Motorcycles and bikes - Executive Segment is the largest motorcycle segment and this is the stronghold of market leader HH. Competitors have tried to challenge HH in this segment, however, all such challenges have fizzled out over time. With higher growth in the economy segment, the contribution of this segment had come below 50% in FY06. However, over the last three years, it has made a strong comeback and now accounts for almost 60% of the motorcycle share.
• Premium Segment. This segment was the creation by HH with 'CBZ' And ‘KARIZMA’; however major boost to the segment was given by BAJAJ through 'Pulsar' which has dominated the segment. HH has remained a marginal player in this segment and one of the reasons for this is the presence of HMSI in this segment. This segment remains a small segment in the Indian market with a contribution of around 23% to the motorcycle industry. This is the performance segment and customers pay a premium for the novelty. Hence constant upgradation in the product is a requisite for success in this segment.

The usage Pattern of two-wheelers in India is quite different from other countries

•  Initial cost and fuel economy are the highest priority.
• Low maintenance costs are desired.
• Small entrepreneurs and farmers conduct their business carrying loads.
• Very limited usage for a sports bike.
• Indians prefer the two-wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments.

Key players in the Two-wheeler industry:

• Hero Honda motors ltd.
• Bajaj auto ltd.
• TVS motors company ltd.
• Yamaha motors India.
• Honda Motorcycle and scooters India Motorcycles in India: Bikes comprise a major segment of the Indian two-wheeler industry.

4 P’s OF MARKETING OF HERO HONDA

Hero Honda, which has a technology tie-up with Japan's Honda Motors, was currently discussing the feasibility of manufacturing scooters for the Indian market, Mr. Munjal said. However, the company has a binding clause with Honda's scooter-manufacturing Indian subsidiary, preventing it from making scooters till 2004. Hero Honda Motors, India's largest motorcycle company, has launched the premium segment 223cc motorcycle Karizma priced at Rs 79,000 (ex-showroom, Delhi).

Many of the products which the company started with have been phased off. Now the existing products are Karizma, Ambition, CBZ, Splendor, Splendor+, Passion, Passion Plus, CD 100 SS, CD 100, and CD Dawn. The TCS study examines customer evaluations at three distinct ownership periods: 1 to 6 months, 7 to 18 months, and 25 to 36 months. This helps in understanding the differences in satisfaction during initial ownership, in-warranty, and post-warranty ownership periods. Satisfaction ratings decline as the length of vehicle ownership increases. However, Hero Honda Splendor is among the few models to maintain consistency across the three ownership periods.

Pricing

Pricing is an important component of the marketing mix of the firm. Determining the prices of different products of a firm is a very difficult task for the marketing manager. Price denotes money value of a product. If represent the amount of money for which a product can be exchanged. In other words, prices represent the money that the buyer pays to the seller for a product price represents the exchange value of goods and services in terms of money.

Price is all around

The price factor has very well been touched by the manufacturers. The pricing strategy of the company is very set. They price their product according to the cost of production and also by keeping an eye on the price of the competitors of that segment and the demand for the product in the market. A pricing strategy ensured an average manufacturer margin that game dealers an adequate return and created a reputation with consumers like “a company selling a good quality product at a reasonable price. The industry focus the low-cost producer with good quality and aimed to maintain the price advantage in every market of two-wheelers.

Hero Honda group ensures easily affordable pricing through excellent transportation to the common man. It fixes customer-centric pricing that provides customer total satisfaction. Hero Honda’s pricing objectives are: List price, Discount, Financing schemes, Credit terms, and Maximize profits Hero Honda group ensures easily affordable pricing through excellent transportation to the common man. It fixes customer-centric pricing that provides the customer with total satisfaction.

Place channels of distribution

As a company, dealers play a major role in serving customers, while growing and sustaining markets. Hero Honda has a network of more than 3500 strong and dedicated Authorized dealers. A network that has helped Hero Honda’s name and its promise of reliable quality to every part of the country. The power of this highly efficient and motivated network goes a long way to create goodwill for the Hero Honda brand among countless consumers besides creating availability and after-sales services. The channel of distribution is a direct dealer network. A direct dealer is a dealer who is authorized to purchase the product directly from the company and sell it.

Physical distribution

Hero Honda has more than 3500 showrooms in India.

• Advertising

It is defined as paid non-personal communication with a target (usually mass) market. It is cost-effective and can reach a large number of people. It can also be used for long-term or short-term objectives. There are various forms or mediums through which one can advertise. Broadcast Media: Television, radio, cinema, newspapers, magazines, outdoor media, posters, and billboards.

• Public relations and publicity:

Public relations are an umbrella term and refer to the totality of the organization’s behavior with respect to the society in which it operates. They may be regarded as good or bad and are reflected in the company’s reputation and image.

• Sponsorship:

Sponsorship can be seen as a part of public relations and it is certainly the case that some sponsorship goes on to generate positive publicity for the organization. The company has not left any stone untamed in sponsoring major events both globally and domestically.

The biggest of all is the sponsorship of the “WORLD CUP” for which Hero Honda has the credit of being the only two-wheeler company in the world to do so. Recently they are sponsoring the Hockey World cup. Besides this, the company has also sponsored events like “Master Golf”, television academy awards, etc, Thus the company has gained a lot of reputation by doing so.

• Discounts/offers:

The company has started giving discounts and other offers to the customers on the purchase of a new bike, for instance, with the World Cup offer, in which the consumer was to get a 1 gm gold coin with every purchase.

But after all these schemes and benefits may be because of cut-throat competition in the segment with heavyweight competition such as Bajaj, kinetic, Yamaha, and TVS the company (HERO HONDA) officially says: “Our aim is to proactively and consistently deliver value to the customer. We are giving back to the customer after becoming successful. Most companies give discounts only when their products are not doing well in the market. There is a lot of competition in the segment, especially from Bajaj.

But the reason for Hero Honda’s success is that we are consumer-focused while other companies such as Bajaj tend to be more competitor-focused.

The company gives advertisements in different media vehicles from time to time. Like in TV. Magazines, newspapers, etc. Hero Honda also organizes free service camps every year. Hero Honda also takes art at the trade fair. Hero Honda with the help of ICICI Bank provides loan to customers & also provide an easy monthly installment scheme to customers. Hero Honda gives huge commissions to their dealers.

Advertisement, local events sponsorship and promotions, and inviting a prominent personality for the inaugural or first-like delivery function would contribute effectively to generating a wider local interest and attention. Hero Honda’s latest DKD –2 commercial its two brands starring its Ambassador and India’s heartthrobs, Hrithik Roshan and Sourav Ganguly, truly reflects the multi-fact roles that today’s new generation plays. The commercial reflecting the charisma and vibrancy of these two stars take Desh Ki Dhadkan to dazzling new heights. It is young, colorful, and vibrant and represents the icons of contemporary times.

And it will go a long way in strengthening the leadership status of the product by the mile. The new commercial is a powerful film repeat with an impressive storyline. The effort to pack the story, drama, and impact in just 60 seconds was a phenomenal challenge in itself. The idea was born itself. The idea was born out of the very essence of “Hero and Stars”. Keeping this in mind would cause the drama and impact it would cause on the audience. It is a commercial packed with action where today’s heartthrobs, Hritik and Saurav, are seen tackling new roles.

Market segmentation of Hero Honda

Demographic Segmentation

Income: HERO HONDA products are offered to the public taking into consideration all the income groups in society.

• Age: The main segmented group for the motorcycle is 18 years and above.
• Occupation: All kinds of people are taken into account. Students, professionals, Govt. Servants, etc.
• Geographic Segmentation: The potential customers are basically from every region of India.
• Psychographic segmentation: People purchasing bikes are very economical, quality, brand conscious, and loyal. Behavioral segmentation:

This segmentation is done considering user status, benefit-wise.

Targeting and positioning of hero honda targeting

The proposed targeting is people in the age group of 18 years and above with an average monthly income of approximately Rs. 10,000 and above, who are brand loyal and who are either students or retired individuals or may be employed as professionals, government servants or having their own business, but mostly male i. e on the different strata of the population.

Positioning

The image that Hero Honda creates in the mind of the customers is faith. The ad shown by it says “Desh ki Dhadkan”. That means it’s a member of the Indian family. It represents Indian culture and society. The objectives can be achieved through the implementation of a suitable marketing strategy by the organization. It is the marketing logic that is formulated keeping in mind the needs of the consumers and also the strategies of the competitors. Porter's five force model for Hero Honda:- Bargaining Power of suppliers: Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is outsourced. Proper supply chain management is a costly yet critical need. Bargaining Power of Buyer:

Buyers in the automobile market have more choices to choose from and the increasing competition is driving the bargaining power of customers uphill. With more models to choose from in almost all categories, the market forces have empowered buyers to a large extent. Competitive rivalry: The industry rivalry is extremely high with any product being matched in a few months by competitors. This instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under technical collaboration with international players. The threat of substitute Products: There is no perfect substitute for this industry.

Also, if there is any substitute for a two-wheeler, Bajaj has a presence in it. Cars, which again are a mode of transport, do never directly compete or come into consideration while selecting a two-wheeler, cycles do never even compete with the low entry-level moped for even this choice comes at a comparatively higher economic potential. The threat of new entrantsHere the threat of new depends on the economies of scale of the cost of production, and customer switching costs, access to industry distribution channels.

S. W. O. T. analysis of Hero Honda (Karizma)

Strength:

• It has a good speed and a sporty look Karizma is the First bike in India launched under Sports Bike Segment.
• Loyal Customer Base: In the past four years, Karizma has been successful in building up a good and loyal base among its customers.
• After-Sales Service: Till today, customers are satisfied with the after-sales service provided by Hero Honda for this particular product.
• Refinement, comfort, great handling, and that much-sought-after big bike feel are all available on the Karizma.
• Brand Recall: the name Karizma itself is a metaphor for its success. The brand Karizma has given a good platform to this product in the Sports Bike Segment.

Weakness:

• High Maintenance: The maintenance of Karizma is high as compared to its biggest competitor Bajaj Pulsar 200cc and 220cc.
• Fuel Efficiency: The pulsar 200cc offers an impressive mileage of 38. 3kpl in the city and 42. 4kpl on the highway against the Karizma offers only 30kpl in the city and a decent figure of 45kpl in the highway.
• Less Promotion: the promotions and ads of Karizma are very less as compared to its competitors.

Opportunities:

• If Hero Honda comes up with the idea of changing some features of Karizma, like self-canceling indicators, soft-touch handle bar, and digital speedometer, it will help them to boost the sales of Karizma. If they are able to improvise the fuel efficiency of Karizma, it will be a golden opportunity to take over the market.

Threats:

• The major threat faced by Hero Honda Karizma is from Bajaj Pulsar, who has always been the market leader in the 150-plus segment with a 60% market share.
• Karizma’s strong competitors Bajaj and TVS, in the 150 cc plus segment, already possess certain features like self-controlling indicators and soft touch handlebars which Karizma lacks.
• The competitor Pulsar 200cc has already come up with an oil-cooled engine that delivers maximum power. This is again a major threat to Karizma.

S. W. O. T. ananlysis OF BAJAJ (PULSAR 220cc)

Strength:

• Pulsar 220cc features India’s First Oil Cooled Engine which delivers maximum power making it the most powerful engine offered by Bajaj. New Pulsar also provides Digital Speedometer and Self Canceling Indicators which is for the First time in this segment in India.
• Fuel efficiency: Pulsar 220cc delivers an impressive mileage of 38. 2 km in the city as compared to Karizma which delivers 30 km in the city.
• Customer Base: In the past decade Bajaj has established a strong base among its customers.

Weakness:

• Style and Design: PULSAR 200cc and 220cc derive their styling from their previous version Pulsar 150 Dts-i and 180 Dts-i.
• Pricing: Bajaj 220cc (Rs 82449 basic price) is costlier than Karizma (Rs 78000 basic price)

Opportunities:

• If they derive new styling, shape, and design for pulsar 200cc and 220cc then they can attract more customers.
• Taking into consideration the reviews of the customers regarding the “fairing” of 220cc and making the needful changes will be an opportunity to capture an even larger share of the 200cc+ segment

Threats:

• The biggest threat is faced by the goodwill of Karizma in this segment who is the “Four-Stroke Two Wheeler Ruler” of the Indian bike market.
• Certain technical faults in the bike design which are potentially dangerous to the rider’s safety can be disastrous to the image of the bike.

Comparison of the advertising strategy of Hero Honda and Bajaj advertising strategy of Hero Honda

Currently, the number one company in terms of sales and has been dominant in the two-wheeler segment for the past decade. Since the inception of hero Honda, the company has been using television as a major role in its publicity.

Though hero Honda was dominant in sales it lacked the skills of creating a spectacular ad till now. Though it had a vast range of mobiles, its advertising strategy was not up to the mark. For its publicity hero, Honda has been using many famous celebrities like Saurav Ganguly, the captain of the Indian cricket team, Hrithik Roshan, and other famous personalities as their brand ambassadors. Thus, hero Honda has been spending huge amounts on its publicity. The biggest of all is the sponsorship of the “WORLD CUP” for which Hero Honda has the credit of being the only two-wheeler company in the world to do so.

Presently they have tried to gain publicity by sponsoring the hockey world cup event which is the national game of India. Thereby creating a sense of oneness and Nationalism by providing publicity and encouragement to the game through various ads. | By sponsoring the hockey world cup event, which is a national game of India.

Advertising strategy of Bajaj

Bajaj is always known for its outstanding ads over a period of time. Since its inception, Bajaj has come out with a variety of ads and was always successful in their advertisements. Scooters were well known by the brand name Bajaj.

Be it any scooter, one used to recognize it by the brand name Bajaj. This was the identity a decade ago that the Bajaj still maintained. Bajaj is always known for its ads without well-known brand ambassadors which is again a plus point to its cart as it saves a huge cost in terms of brand ambassadors unlike Hero Honda and TVS. Prior, Bajaj used to convey the feeling of ‘Indianness’ in its ads. With a punch line, ‘Hamara Bajaj’ Bajaj drove into everybody’s hearts and the title song of ‘Naye Bharat Ki Naye Tasveer’ added great value to its motorbikes and scooters.

A couple of years back, Bajaj introduced an advertisement that promoted all the different ranges it had, wherein they had shown each product they had with a feeling of Indianness. Example: Eliminator passes by a rangoli and drives slowly sideways without disturbing it. People on the boxer pass by a temple and bend their heads to give a little offering. Such ads revealing Indian culture had a great effect on Indians and Bajaj was successful in most of its ads. But recently, Bajaj changed its brand logo along with its punch line i. e. ‘Hamara Bajaj’ got converted to ‘Inspiring Confidence’.

The reason for this change as told by the company officials was to keep pace with the new technologies in the fast-moving world. Even though it had changed its punch line, it didn’t have much effect on its brand image. A year back, Bajaj introduced DTSi technology upgrading its always-successful PULSAR 150cc and 180cc. Though Bajaj had changed its identity it still dominates for its creativity in ads.

 Conclusion

The outlook for India’s automotive sector is highly promising. In view of current growth trends and the prospect of continuous economic growth of over 6 percent, all segments of the auto industry are likely to see continued growth. Large infrastructure development projects underway in India combined with favorable government policies will also drive automotive growth in the next few years.

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