Bajaj Auto operates in all the segments of the two wheelers industry. As a percentage breakup of revenues in FY 2000, 39% was earned through sale of scooters, 22% through motorcycles, 7% via step-thrus, 23% from three wheelers and 3.4% from mopeds. The company is a major player in the 3-wheeler market with almost 81% market share in the year 2000.
Traditionally the focus of Bajaj Auto was in the scooters segment in the two wheelers market. But, of late, due to decline in the scooters volume due to shift in consumer preferences, the company has been shifting its focus towards the other high growth segments in the two wheelers. The business mix of Bajaj is constantly changing in line with the changing trends in the two-wheeler market. Now it is is looking towards the motorcycles segment which is expected to witness high growth rates in the future. It is trying hard to cope with the new trends.
The unfavorable sales mix due to shift in the consumer preferences from scooters to motorcycles and from step-thrus to scooterettes was instrumental in lowering the margins for Bajaj Auto. To tackle the growing competition and shift in the consumer preferences, Bajaj is entering aggressively into the motorcycles segment to improve its topline growth. In a bid to sustain and expand market share, Bajaj has been increasing its adspend in the recent years apart from offering attractive discounts and incentive schemes to boost sales.
The business environment in the two wheelers market has been very dynamic in the past decade, with rapid changes in the customer preferences and entry of new players.
There has been a shift from scooters to motorcycles which is evident from the fact that in 1995-96, almost 1.2 million scooters and 661,000 motorcycles were sold whereas in 1999-2000, 1.1 million scooters were sold and motorcycle sales had crossed 1.6 million.

There has been a shift within the scooters segment as well. Trends show that consumer preference is moving away from the traditional metal-bodied models to the sleeker scooterettes. In 1994-95, a little over 96,000 scooterettes were sold, whereas in 1999-2000, the number rose to 258,000.
Bajaj Auto's highly-profitable 3-wheeler business is expected to stagnate in FY01. In the year 2001 many of the Japanese companies are expected to enter the Indian market with their own fully owned subsidiaries in the two wheelers market. Honda Corporation of Japan is expected to commence its production of scooters in August 2001, which may pose a big threat to Bajaj.
Bajaj has technical collaboration with Kawasaki Japan which is planning to use Bajaj Auto's manufacturing base for 40% of its global supplies which would enhance the product range of Bajaj and improve its exports.
From Follower to Market Leader: Strategic Recommendations for Bajaj Auto Ltd.
Faculty Contributor: Murali Patibandla, Professor
Student Contributors: Prasoon Agrawal, Deepak Chourasiya, Ranjit Deka, Sourav Kumar, Ravi Sonthalia
In a competitive environment, a substantial amount of the management’s focus is directed at establishing their companies as the market leaders. In a concentrated industry where 3-4 major players enjoy a large market share, such a problem becomes even more important. This article attempts to identify the right strategy that competitors should adopt to become market leaders, by taking the case of India’s two wheeler industry. The recommendations are based on the analysis of Bajaj Auto Ltd’s strategy in the last few years.
Bajaj Auto is one of the oldest and the second largest two wheeler manufacutrer in India. In addition to coping with fierce competition from other players in the two wheeler segment, it also has to protect its market share from the impending onslaught of low price small cars such as Tata Nano. Holding on to its postion in such a challenging market environment requires innovative strategies and deep understanding of consumers needs. The article analyses the two wheeler market in India and Bajaj's positioning therein. Based on the analysis, the article proposes the strategic options available to Bajaj.
Two Wheeler Industry: An Overview
The Indian two-wheeler industry has witnessed spectacular growth in the last few years. The market dynamics of the industry has substantially changed with a majority of the customers preferring bikes to scooters and mopeds. This is primarily due to better fuel efficiencies, dynamics, looks and longer product lives of motorcycles.
The motorcycle segment constitutes about 81.5% of the two wheeler market in India1. It also contributes to three-fourths of the total exports in the two wheeler industry. Exhibit 1 shows that Bajaj is the second largest player in this segment after Hero Honda.
Exhibit 1. Market Shares of the major players in the two wheeler market segment
The industry exhibits some degree of collusive behaviour and thus represents an oligopolistic form of market structure. Product and brand differentiation are seen as the primary means of sustaining competitive advantage. In order to sustain brand equity, players spend large percentages of their revenues in advertising and brand building activities. The supply and distribution networks are decisive factors in staying competitive and normally need a huge capital investment.
The two wheeler industry is capital intensive with large fixed cost requirements and new model introductions mandatory at frequent intervals in order to sustain the demand. This involves substantial design and R&D costs. Such high fixed costs can be offset only by achieving economies of scale. Moreover, developing a distribution channel is extremely difficult in a country like India. Therefore, it is difficult for a new player to enter this industry.
Demand and Growth Drivers
The following factors play a major role in increasing the demand for two wheelers in India.
Personal Income, demography and penetration level are key growth drivers in the two wheeler industry.
Personal Income
Demand increases as the income increases, only to be substituted later by the demand for four wheelers. Income has been steadily growing in India and is projected to stabilise at a growth rate of 9-12 percent range by 20122.
Demography and Inspiration
The bigger the young and working population, the greater is its need for commutation. The IT and BPO revolution has influenced this movement. This is a favourable factor since India’s workforce is young.
Penetration Level
The lower the penetration levels in the market, the better the scope for future demand. As the penetration of the rural market is significantly low, it is going to be a significant long term growth driver.
Other Factors
Improvement in infrastructure increases competition, while simultaneously improving the public transport. The average time period taken to replace an existing bike with a newer model has decreased from 7 years to 5 years, resulting in replacement demand growth.
Problems in the Two Wheeler Industry - Negative Growth
Negative growth is the major problem being faced by companies in the two wheeler industry. The two wheeler industry has been shrinking continuously3. From a peak of over 40% growth in 2002 it is currently facing a growth of -12% in the second quarter of 2008. Exhibit 2 shows the recent trends.
Exhibit 2. De-growth in the industry
Analysis of the different segments leads us to the conclusion that the main reason for negative growth in the two wheeler market is the fall in demand for the 100 cc segment which has traditionally enjoyed the maximum market share as shown in Exhibit3. | FY06 | 9M/07 | Q4/07 | Q1/08 | Q2/08 | Motorcycles | 19% | 18% | 4% | -10% | -12% | 100cc | 7% | 14% | -12% | -20% | -23% | 125cc | 121% | 31% | 71% | 10% | 11% | 150cc | 29% | 22% | 43% | 28% | 22% |
Exhibit 3. Segment-wise analysis
Many factors have contributed to this phenomenon. A few of them are discussed ahead.
Interest Rates
Interest rates are one of the prime reasons for the sharp fall in demand. Many banks have increased interest rates which make two wheelers costlier.
Credit Crunch
Difficulty in availing loans, rising defaults, tightening of loan recovery laws and various other factors have dissuaded consumers from availing loans and led to further problems in credit lending.
Oil Prices
Increasing oil prices have deterred many lower middle class families from buying two wheelers.
Launch of Low Priced Cars Like Tata Nano
Introduction of low priced cars will directly affect the market. The family segment would want to gradually move from two wheelers to four wheelers. The major impact of this phenomenon would be experienced in the 100-125 cc two wheelers whereas the performance segment i.e. > 125cc will continue to grow strongly.
Tightening Regulations (Emission Standards)
With the introduction of the Bharat-4 norms, it will be more challenging to meet these stringent norms whilst simultaneously offering competitive prices.
In spite of these factors, demand drivers are present for the foreseeable future and are favourable for the two wheeler industry. However, to capture this growth, any player will have to correctly position itself to appeal to the consumer.
Positioning of Bajaj Auto in the Two Wheeler Industry
Bajaj Auto is the flagship company of the Bajaj Group of Companies. Bajaj Auto Limited (BAL) is currently India's second largest two wheeler and three wheeler manufacturer. The core competency of Bajaj Auto Ltd is its technology and innovation. Both DTS-i (Digital Twin Spark Ignition) and DTS-Fi (Digital Twin Spark Fuel Ignition) are technological breakthroughs by Bajaj. BAL is also a pioneer in product innovation having introduced technologies such as ExhausTEC (Exhaust Torque Expansion Chamber), LED Tail Lamps, LCD Display, SNS, Spare parts (Tubeless tyres, rear disc brakes), Black colour scheme etc.
Thus we observe that BAL which used to be a Defender in 1970-1990 through Bajaj Chetak radically moved towards becoming an Analyzer (1990-1997) by focussing on bike segments and has now become a Prospector (1997-date) with several patents in its kitty and new bike launches every year. Therefore, for a follower to move on and become a market leader it is essential that it focus on innovation and consumer demand.
The Way Ahead
Graduating Customers from the 100cc to Higher Segments
There are several reasons why Bajaj should concentrate on its core segment, i.e. greater than 125cc segment. With the introduction of DTS-i and DTS-Fi technology, Bajaj Auto Limited has led the way in pioneering technology along with style.
The Profitability Pyramid in Exhibit 4 shows that the margin is very low in the sub-125cc segment but volumes are high. BAL wants to shift users from 100, 115cc segment to 125cc and higher. Thus Bajaj not only wants to play on the margins but also wants to increase the market share of 125cc bikes. With its recent launch of XCD 125cc, it has brought in competition for its own 100cc model, Platina by delivering a bike that is better in all respects (including fuel efficiency).
Exhibit 4. Profitability Pyramid
Thus, we conclude that Bajaj wants to make a slow departure from 100cc segment. It has already stopped production of the Discover 125 and will continue production of the Platina until the demand for the 100cc remains. It has priced the XCD between the Platina and the Discover and in the future, would ideally wish to project the XCD 125 as its base model.
Focus on Gearless Scooters
The market share of gearless scooters is increasing at a healthy rate. Bajaj is virtually absent in this range that caters to the needs of women and families. Presently Honda, Hero Honda and TVS are big players in this segment.
Entry into Four Wheeler Segment
Bajaj has entered into a joint venture with Renault-Nissan in the development of a small car priced at $30004. This is a significant move because it directly competes with Tata NANO. Bajaj has also displayed its small car prototype in the recently held auto expo. It promises double the mileage as compared to any car in the economy segment and is also considering the option of introducing Diesel and LPG variants. The four wheeler segment will also be able to hedge any risk that might arise because of the two wheeler industry and would profit from retaining consumers switching from two wheelers.
Scaling Up Service Centers
BAL needs to scale up its service centers both in numbers and in capacity. Keeping in line with its growth target for the next 5 years, its service centers should not only cater to two wheelers but should also be upgraded to cater to the needs of four wheelers that Bajaj plans to launch.
Focus on Easy Credit Lending
In the present economical crisis, Bajaj can utilize its subsidiary, Bajaj insurance in coming up with schemes that will help consumers buy two wheelers on friendly terms.
Investment in Research and Development
We have already identified that the core competency of Bajaj is its R&D and investment in technology. In order to increase market share and become the market leader, Bajaj needs to invest heavily in R&D. They have to introduce efficient and powerful bikes as well as develop alternate energy vehicles.
Focus on Exports and Global Market
Bajaj Electricals has already setup a manufacturing unit in China. As set up cost and export costs are extremely cheap in China, we recommend the same strategy for BAL. By doing so, Bajaj can utilize low cost exports.
Bajaj is not yet a global name. Considering the fact that it is one of the oldest two wheeler companies and is doing very well in India, it should definitely target global markets. A movement is seen in this direction since it is focusing on the British cult bike company, Triumph as its target takeover. Triumph, given its niche positioning, cult brand image and strong product line-up, is an attractive target for the Pune based firm.
Disbanding of Dedicated Sales Force for each Product
Because of the differentiation in the products that Bajaj currently possesses and is expected to launch in the near future we recommend Bajaj to discontinue its current strategy of dedicated sales force for each product line. This would eventually achieve synergies in selling thereby leading to a reduction in costs.
Conclusion
Through this article we have tried to identify various factors that would impact growth of a company in two wheeler industry. We reflected on the importance of innovation and consumer demand. To graduate from being followers to market leaders, companies need to invest in the right technologies and develop the right products at the right time. Bajaj has shown the willingness to change and thus has been able to achieve strong sales growth. To further consolidate its position and gain market share in the industry, Bajaj needs to do strategic rethinking and assess its product focus. The new strategy should also be backed by efficient on the ground customer support and continuous research for product innovation. |

Tue, Sep 07, 2010 | Updated 08.47PM IST
16 Oct, 2007, 01.45PM IST,
Two-wheeler industry: Facing a crisis?

The two-wheeler industry has seen an unexpected slump in the current year. Firm interest rates are being cited as the obvious reason for the lack of demand. | Vivek Vig
Country Head, Retail Centurion Bank of Punjab |

The two-wheeler has always been an intrinsic part of the Indian milieu. It offered and continues to offer the Indian middle class the freedom from the clutches of an often non-existent or unreliable public transport system. It offers mobility at a reasonable cost. For a large portion of the population a scooter or a motorcycle is a necessary accessory for their livelihood.

Of late, the two-wheeler industry has been under an analytical microscope with volumes slowing down and even showing a negative growth. Financiers are being more cautious in their lending, leading to greater pressure on volumes. The industry seems to be caught in a negative downturn at the moment but the key question remains — is this downturn temporary or is it here to stay?

From the financiers’ perspective, servicing this industry and this customer segment is an operationally intensive exercise, covering locations that fall outside city limits and being dependent on correspondent banking relationships and a robust collection infrastructure. In the case of a downturn, caution enters the equation as financiers look to keep NPAs under control.

The customer typically belongs to the lower-middle and middle class. For this segment, aspirations have outpaced real income growth leading to a greater propensity to borrow and spend. With rising inflation, this segment has found itself over-leveraged. The hardening of interest rates at such a juncture leads to the customer postponing or deferring a new purchase. This is what has happened to the two-wheeler industry today.

The one-lakh-rupee car is seen to be another threat to the two-wheeler industry but the truth is that the running and maintenance cost and the sheer convenience of a two-wheeler, given our infrastructure, are difficult to replace. However we must wait and judge the aspirational impact of owning a car on the Indian consumer.

This environment has prevailed for the past six months but this is beginning to see a change with inflation showing a definite decline and interest rates showing the first signs of softening. As a general trend the industry has begun to lower interest rates, in a segmented fashion. Given these changes in the environment I expect to see an increase in demand with a certain lag effect — the time it takes the benefits of reduced inflation to impact the customer’s cash flows.

Manufacturers are also working at increased segmenting of the market launching products aimed a newer segments like girls and women. Newer products, such as electrically powered motorbikes are also being introduced in the market. The market also is seeing a lot of action in the 150cc plus market with new models slated to hit the market. At the same time, brand building and promotional spends of top manufacturers have not shown significant reduction, keeping the category in the minds of potential customers. I expect that the festive season will bring in price-offs and discounts along with other promotional offers that will provide another fillip to sales.

While this will have a temporary impact, it is imperative that the manufacturers, dealers and financiers work together even more closely. Manufacturers have a very strong relationship with their suppliers and dealers but very often view the financier as an external ‘service provider’. The financier has to have greater integration in the entire supply chain, working towards maximising customer solutions and services.

To sum up, I would like to state that all the economic indicators remain positive. The demographics of the country remain favourable for the industry and there is a tremendous tailwind in the economy and a spirit of prevailing optimism in the country, which makes me very confident that a turn around in the two-wheeler industry is just around the corner.

| Venu Srinivasan
CMD
TVS Motor Company |

There is no doubt that the two-wheeler market in general, and the motorcycle market in particular, is witnessing a demand slowdown.The domestic sales of two-wheelers is down by 9.47% in the first six months of the fiscal 2007-08, according to statistics published by the Society of Indian Automobile Manufacturers (SIAM). Within the overall two-wheelers category, motorcycles and step-throughs are down by 15.2%. The domestic sales of the largest category — motorcycles of engine capacity 75 cc and above, but less than 125 cc — were down by over 21% in the first six months. The domestic sales of scooters were, however, up 20% in the period April-September 2007 over the corresponding period last year.

The issue, I feel, is three-fold. Firstly, there has been a slowdown in the rate of economic growth. That should not be mixed up with a slowdown in the economy. But we must remember that we are coming off a high growth rate. And any slowdown in the rate of economic growth, indeed even a one per cent decline, tends to get exaggerated many times over.

The second reason for the demand skid in motorcycles is the credit squeeze. With the money supply going up really fast, the Reserve Bank of India (RBI) decided to cut back. As a result of the tightening by the central bank, loans to two-wheelers got severely pinched.

There is another angle to that story. Last year, two-wheeler loans saw a huge amount of delinquency. So when the credit squeeze happened, two-wheeler financing was the first to feel the pinch as banks cut back.
The other reason for the two-wheeler demand slack is, of course, inventory levels. Last October-March saw stock rising for the big three bike manufacturers — Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motor Company. Everyone expected demand to pick up speed. It did not and that led to higher inventory levels. All of that finally impacted overall demand and offtake.

Typically, motorcycles are bellwether products. At the bottom of the economy, motorcycles are the first thing that people actually buy; not a car. So the way demand performs in two-wheelers is an indication of things to come. In that sense two-wheelers are a lead indicator of sorts for the economy. And sure enough, the two-wheeler demand got hit first, then commercial vehicles dropped and then the slowdown hit the car market as well. And now it’s no longer just the automobiles; consumer durable demand has started to take a knocking as well.

That brings me to the important question: is the two-wheeler slowdown a temporary blip or a long term trend? I don’t believe the demand for two-wheelers will perk up till the money supply eases out and banks start giving out loans once again. Even the launch of new models will not make much of a difference to the demand situation. The new launches may lead to marketshare changes but overall sales won’t increase very much.

Do I see light at the end of the tunnel any time soon? Not really. I believe there is still a lot of pain to come. Subsidies on petroleum products and fertiliser are rising rapidly on account of the increase in global crude oil prices — the price of Indian basket of crude has gone up from a low of about $63 a barrel in May this year to about $78 a barrel now. This will soon start to bite.

Right now a strong rupee — which has appreciated by about 15% against the dollar in the last one year — is propping up economic activity in the country by boosting imports. But that is not sustainable in the long run.

| Sharad Verma
Principal, The Boston Consulting Group |

Over the last decade the two-wheeler industry has been one of the highest value creators, recording annualised shareholder returns of over 40%. One of the chief drivers of this value creation has been the strong sales growth, which has sustained at over 15% over the last five years.

However, in the last six months of this financial year the industry recorded an overall decline of 7% on the back of a rising interest rate regime. Further, the prospect of the much awaited “1 lakh car” has raised apprehensions of cannibalisation of demand. These events have the raised the question of whether the industry is facing a crisis and is the negative growth the start of a long-term trend.

If one examines the recent decline, it has largely been for the entry level segment — both the 125cc+ motorcycle segments as well as the ungeared scooter market have expanded. The primary reason for the decline has been the limited supply of credit. Several financiers have withdrawn from the market, or reduced their exposures, driven primarily by high delinquency levels. Thus ironically it has been the supply (of finance) that has been the hurdle and not customer demand.

The threat from the “1 lakh car” appears to be limited. The current substitute in the form of ‘used cars’ already exists. The relevant segment that could migrate is the ‘premium’ commuter segment which comprises only 5-10% of the overall volumes. Further, we estimate that the total cost of ownership (TCO) for the “1 lakh car” would be ~3x that of a two-wheeler and this would deter customer migration.

Finally, fundamental demand drivers remain strong — rising income levels, increase in youth population, absence of quality public transportation, low penetration levels in particular in smaller towns and rural markets and shorter replacement cycles.

Having said that, for the industry to realise this demand and sustain the growth momentum a different approach is required from the past. The focus needs be on innovation across product-markets and to redefine their scope of business operations.

In the domestic market two segments are expected to contribute significantly to growth.The urban middle class (annual household income between Rs 2-10 lakh) and the rural aspirers (annual household income between Rs 1-2 lakh). Both these segments offer unique challenges. The growth in the urban middle class will be driven by increasing number of households and rising income levels. Thus product demand will get created and the focus will be on delivering affordable financing. Existing financing sources are going to be challenged given the reach required and the cost of serving these “higher credit risk” segments.

Two-wheeler players will need to develop captive or alliance opportunities for credit provision in such markets. (In Indonesia, the absence of a developed financing infrastructure has prompted local players to create their own captive arms for their customers).

The growth in rural aspirers will be primarily driven by an increase in penetration levels (current figures are at 15 vehicles per thousand household). The challenge here is to create a unique product for this market, rather than an adaptation of the existing urban vehicle, which meets the needs and price expectations of the customer.

Finally, local players need to explore global markets to de-risk local demand cycles. India has players which have the scale and capabilities to compete on a global basis and there is a significant opportunity available in developing markets, in particular in SE Asia and Latin America. The critical aspect is to not view this as an exports option but as an opportunity to create a local dominant position in these markets.

The economic growth, need for better conveyance and gradually improving road infrastructure coupled with better credit and financing options, have acted as a major catalyst in encouraging the growth and development of the two wheeler segment in India. Further, the new and improved features on the two wheelers, their stylish and trendy looks and a rage with the country's youth who form a substantial influence in determining the consumer behavior have ensured that the two wheelers remain on top of the automobile industry's agenda in India.
Some of the features that deserve attention in respect of the Indian two wheeler segment are as mentioned: * The total sale of two wheelers in India has touched a figure of 7.86 million units by March, 2007, up 11.42% from the previous fiscal figures of 7.05 million. Production during the period reached 8.63 million units. * The production of two wheelers in India is expected to reach a staggering 17.85 million units by 2011-12, more than double of the current production level. * The two-wheeler production capacity is to reach 22.31 million units in 2011-12 compared with 10.78 million in 2006-07. * India is likely to export 1.39 million two-wheelers in 2011-12 compared with 590,000 in 2006-07. * Total investment for new capacity generation in two-wheeler segment is likely to be more than $2.2 billion (INR10, 000 crore). * Hero Honda, Bajaj Auto and TVS Motor remain the leading players in terms of sales and popularity of their two wheelers. http://tejas-iimb.org/articles/21.php http://www.fadaweb.com/two_wheeler_industry.htm

BAJAJ AUTO * Broader production base: The Company should be poised to drop its costs and increase its competitive strength in the market place so that it may be able to broader its production bases. * Low per capita use: The per capita consumption Bajaj auto products in general and Bajaj Caliber in particulars in India is not so high as in China and Japan. This notwithstanding the fat that the Company has been able to achieve a mixed bag of success and failures recently. The fact remains that this disparity is expected over the coming years especially with prices expected to drop in the coming year. * It should increase its number of authorized dealers and service centers in India. * Global thrust: It can thrust to emerge as a global player of respect for which it is necessary to export in bigger quantities than it has done in the past. This will require big capacities. * The media Revolution, Exposure to foreign brands and raising incomes will promoted greater consumer awareness. The market for consumer goods will continue to grow and rural demand is expected to be particularly strong as a result of several years of comparative agricultural prosperity. Therefore the company should increase its production capacity and capitalize on its resource-mobilizing capabilities to this end only. http://www.scribd.com/doc/31877338/BajajAuto-Stop-Scooter-Production-EPGDIB-20009-11-Roll-61 (Guys this assignment has been submitted by a student of IIFT regular course and postitively contains some economic aspects ) hope this will be more useful ..than any other we have submitted so far...!