The Hindu Business Line : The year of Dawn, Splendor and Passion

A MILLION Splendors in a year, two million bikes in all, gross profits exceeding Rs 1,000 crore and a 1,000 per cent dividend; it couldn't get better than this for a company operating in the fiercely competitive two-wheeler market. Hero Honda did all this by growing 25 per cent in a market which grew 11.5 per cent, cornering 70 per cent of the growth of the entire two-wheeler market to increase its market share from 34 per cent to 38 per cent.

Hero Honda's challenge

Hero Honda looked shaky a year ago. Pulsar, Victor, Activa and Freedom were the star performers that year and none of them were from Hero Honda. Its market share was stagnant. TVS and Bajaj were catching up in the motorcycles segment. New challengers were on the horizon. Yamaha seemed to be reviving, LML got the Freedom right, Kinetic was active in the motorcycles space. On another front, Hero Honda's agreement with Honda was expiring and Honda was set to launch motorcycles on its own. The scenario for Hero Honda, then, was anything but sunny.

Reacting quickly is not an option in the two-wheeler's field. It takes three years or more to launch an all-new model. Even a refurbishment of an existing model could take a year, from concept to launch. So it will be inaccurate to describe the launch of CD Dawn, Splendor Plus and Passion Plus, in 2003-2004, as Hero Honda's reaction to the developments in the market place during the previous year.

On hindsight, there were actually three simple and logical moves for Hero Honda to make. But it had to get all of the content, timing, price and presentation right to make these moves deliver. The entry-level 100 cc motorcycles segment was built, almost brick by brick, by Bajaj into a large and growing segment through its persistent efforts with Boxer. It was natural that Boxer rule this domain. But Hero Honda was the one which created and built the main domain of 100 cc four-stroke bikes. Therefore, Hero Honda could look at it as a challenge to its overall dominance of the 100 cc segment or as a logical space made available to them for growth.

Hero Honda had launched Dawn earlier, targeting this segment, but that was a makeshift effort and its cost structure did not permit the kind of pricing required to seriously challenge Boxer. CD Dawn, then, was the vehicle conceived and developed for this purpose. That Hero Honda got it right would be an understatement here. CD Dawn overtook Boxer some four months after its launch. In October, when Hero Honda's promotional campaign was at its peak, CD Dawn's sales soared to over 60,000, a figure not reached by any vehicle but Splendor. By the year-end, it was inevitable that the largest and the second largest selling bikes would be from within Hero Honda's stable.

Reviving Passion

There was more to come. Within Hero Honda's 100 cc stable, Passion was the most vulnerable model because its basic platform is styling. Aging was obviously its biggest enemy. Passion was suffering from it. And, as it happens, it was also suffering from every new product launch in the segment. And there were so many of them.

For a vehicle to compete on styling with the latest offerings, Passion Plus with a new headlamp, new stickers, a two-tone paint job and a protector on the exhaust seemed to have made only a nominal effort at rejuvenation. But, here again, it is hard to argue against figures. Passion, which was selling less than 20,000 vehicles per month, more than doubled its volumes in two months after its launch. And it has stayed steady there ever since. In the bargain, it has hit every vehicle had threatened it earlier, including Victor, Freedom, Caliber and Wind.

A resurgent Passion would normally have cannibalised Splendor to some extent. Therefore, the launch of Splendor Plus almost simultaneously with Passion Plus was a good piece of marketing thinking.

If Passion took from Splendor, Splendor Plus took from the others. The net impact was that a million Splendors were sold in a year. And Splendor had already attained the status of the best-selling motorcycle brand in the world a couple of years ago, when its annual sales reached 6,50,000 units.

Thus Hero Honda continues to dominate the 100 cc realm. There appears to be no profitable and enduring space for the others in it. If taking Splendor head-on is no option, Hero Honda has covered its flanks so well that the competition sees this entire segment as insurmountable.

The 125 cc onslaught on the 100 cc fortress

If Hero Honda's realm is a fortress that is hard to scale, the obvious thing to do is to build another, sufficiently distant to be seen as different but close enough to attract those from the periphery who are inclined to move up.

Therefore, it is no coincidence that the recent launches of Wind 125, Freedom Prima, Victor GLX 125 and Fazer are all 125 cc bikes. The much anticipated Discovery from Bajaj is a 125 cc vehicle. And it is likely that the vehicle that Hero Honda is giving finishing touches to be its next major launch is also a 125 cc vehicle.

It has been hypothesised for sometime now that the centre of gravity for bikes will shift from 100 cc to 125 cc bikes. That would mean that much of the nearly 70 per cent of the two-wheeler space occupied by bikes below 125 cc will gradually be occupied by the 125 cc bikes.

The basis for this hypothesis is that, globally, 125 cc is the entry-level platform for bikes. The 100 cc four-stroke bikes have dominated the Indian market for so long because they created and built the market for mileage-oriented bikes in the country. They not only took over the position held for long by geared scooters, they also expanded on it enormously. Most of the action in the bikes segment has been in this category. And now with the action shifting to 125 cc bikes, the expectation is that, like in the cars field where the centre of gravity has shifted from Maruti-800 to the B-segment cars comprising Alto, Zen, Santro, Indica and the like, it would happen with the bikes too. It is seen to go with the natural process of ageing and the desire for progress and change.

But will it happen?

The logic is compelling indeed. There can be no doubt that the 125 cc segment will become sizeable with so much of action focused on it by so many companies. But the question really is whether the centre of gravity will shift in the foreseeable future. There is also the question as to the extent to which this hypothesis is popular because two-wheeler companies want this to happen. It is perhaps a wish and not a vision or a forecast. The idea is that only a shift in the centre of gravity will offer other companies a profitable space in the volume segment of the two-wheeler market.

For years, competitors have been trying to break the stranglehold that Hero Honda has had on the 100 cc four-stroke segment using price, styling, pickup, 110 cc engine capacity and so on. There have been so many spurious attempts at establishing a differential on mileage that such claims stand discredited, en masse, among customers, making it very difficult for even genuine claims to get across.

The hard-core Hero Honda buyers have also been indifferent to inducements on the price front. At times, the price difference between Splendor and the lowest priced 100 cc bike was as much as Rs 8,000. While such offerings created another sizeable segment, they did not really touch Hero Honda's space. The question now is will the action on the 125 cc front do what all the action on the 100 cc and 110 cc front failed to achieve?

The Maruti-800 to B-segment argument in projecting a shift in the centre of gravity from 100 cc to 125 cc bikes is not very tenable. There certainly is a striking resemblance between 100 cc mileage bikes and Maruti-800 in what they are, as also what they have achieved. But Maruti-800 has been a single model competing against so many distinct B-segment models. It wasn't possible for the new entrants to compete profitably in the A-segment and there were no new launches at all from them in this segment. That isn't the case with 100cc four-stroke bikes. There have been a score or more serious new launches and there will be many more in the future. Many companies have made vehicles like Splendor with better styling and features. And these could be made and sold profitably. It is just that customers are refusing to buy them in large enough numbers.

Whither 100 cc?

In other words, there may be a lot of action in the 125 cc segment. But that needn't stop action in the 100 cc segment.

Coming up with the Chetak vs Splendor argument to conclude that a shift from 100 cc bikes to 125 cc bikes will prise open Hero Honda's stranglehold is also not very convincing. Chetak and 100 cc bikes were like chalk and cheese in every conceivable way. So it was almost impossible to even imagine that they would be in direct confrontation. In fact, they seemed to have co-existed peacefully for so long.

Ultimately, the change from Chetak to 100 cc four-stroke bikes was generational. It involved large doses of technology, personality and platform, coupled with decades of neglect. But, between 100 cc bikes and 125 cc bikes, the values, technology and platform will be the same and there will be no neglect.

Thus the 125 cc platform will attract only the two-wheeler buyers who seek to upgrade and buy something better. They account for only 20 per cent of all buyers at present. To the others, 100 cc bikes provide all things that a commute or functional buyer needs. There is no discomfort on price, pick-up, mileage, riding comfort that can make a quantum difference as it happened in the transition from geared scooters to 100 cc four-stroke bikes.

However, even without a shift in the centre of gravity, it is easy to see the 125 cc segment being sizeable. At 20 per cent of two-wheeler buyers, the potential for all bikes of 125 cc or higher capacity is over a million. Pulsar and other vehicles which come under the 125 cc plus category account for only around 5,00,000 vehicles, at present. That leaves open a space for 5,00,000 vehicles. And this space will grow.

Yamaha was one of the first to see an opportunity in the 125 cc platform. It has had YBX, YD125 and Enticer as options in it. But these offerings were weak and Yamaha's own footprint was too small to stir up the market. Nor did it go to town presenting its vehicle as a differentiated platform, as LML is doing with its Freedom Prima.

Thus the real action in the 125 cc segment has just begun. It is likely that at least one of the 125 cc launches will be exciting enough to reach volumes of 2,00,000 or more over the next two years. That would be a very nice and profitable volume to posses for a brand but certainly not enough to seriously threaten the 100 cc platform or Hero Honda's hegemony over it.

Therefore, if there has to be a big idea that has the capacity to prise open the stranglehold that Hero Honda has on the motorcycles market, it is unlikely to be a 125 cc bike delivering Splendor's mileage, Pulsar or CBZ like styling and a pricing of Passion. Someone may even add a disc brake and electric start and come up with a price tag under Rs 45,000 to be aggressive enough to move the customers.

That very kind of thinking that so dominates product development efforts could be limiting. There is nothing in it that we can be sure of that has the ability to reach the core. Reliability of the vehicle and feeling safe about buying it are not attributes that can be addressed directly. It evolves only when the volumes build up. And for the volumes to build up we need to address these attributes! Only Hero Honda has the credentials for doing it on a large enough scale. So all that the current 125 cc bandwagon may do is to prepare the market for another big move by Hero Honda in launching its own 125 cc bike.

And if at all anything has the capability of starting a shift in the centre of gravity towards 125 cc bikes, it will be this move by Hero Honda. But then that would have Hero Honda dominating the 125 cc realm as well.

(The writer is Managing Director of the Chennai-based Francis Kanoi Marketing Planning Services Pvt Ltd.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
For home and heart

Testing the waters

Romancing the skies

Quo vadis, consumerism?

Writing right

New face at AAAI

To school, they go

The year of Dawn, Splendor and Passion

The growing bio marketspace