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Bajaj Auto to sharpen value quotient during Covid

Murali Gopalan | Updated on June 18, 2020

Rakesh Sharma, Executive Director, Bajaj Auto

Executive Director Rakesh Sharma says business is coming back on track though challenges remain

It was during a team discussion at Bajaj Auto that Executive Director Rakesh Sharma recounted a conversation he had had with a local in Africa some years ago.

At that point in time, Bajaj had made big roads into the continent with its entry-level Boxer motorcycle which ended up growing from strength to strength. Yet, it was costlier than the prevailing Chinese bikes and this is what prompted Sharma to ask the person why people in Africa were ready to pay 25 per cent premium for a Bajaj motorcycle.

After all, this was a poor country and every extra bit of money mattered to people. The man’s answer, however, astounded Sharma. “I don’t have enough money to buy cheap,” he replied. To the Bajaj ED, this was a profound statement which meant that ‘I am buying a value product because I value my money’.

From Sharma’s point of view, this was an important input which holds good for Bajaj Auto’s customers in India too especially during a difficult period like Covid-19 when pay cuts have become the norm. “I would say that in times like this, people like to go for real value and brands which they can trust. They do not rush to buy cheaper bikes,” he says.

By the end of the day, the company could have never created an Africa business if people always bought cheap. After all, the Chinese were entrenched there and it was in this setting that Bajaj came up with a more expensive offering.

“Sure, we took time to prove our proposition but the message was loud and clear: if you buy a Bajaj Boxer, you will get value over a period of time,” narrates Sharma. People in Africa recognised that and the Boxer set sales charts afire while firmly establishing Bajaj Auto as a formidable entity in the country.

According to Sharma, during times of economic wellbeing, there is a lot of adventurism in the bike segment where customers typically get attracted to “little bells and whistles”. However, when the tide turns and things become difficult as in the present pandemic, the same buyers become “slightly more careful and will go for the real thing”. They will not get distracted by some fancy colours or gimmicky features, he adds. What also happens in these tough times, which mirrors the Africa experience with Boxer, is that nobody settles for cheaper options. “In India likewise, the fundamentals will not change and a guy who has a 150cc bike in his mind will not opt for a less expensive 100cc because of this downturn,” reiterates Sharma.

He would rather wait instead or even choose to do away with some extra features in the 150cc. Yet, he will not go all the way down and buy a 100cc motorcycle. “The segment will be intact but, within the segment, people will go more towards value and less towards fancy parts of the proposition,” reckons Sharma.

Interestingly, Bajaj had already kicked off the process of rejigging its portfolio to offer more value even before Covid-19 set in. For instance, the entry level 100cc segment is now moving towards the 110cc space. Beyond engine capacity, models here offer additional features like better suspension, tube tyres, LED headlamps and the like.

From the company’s point of view, the reasoning is straightforward: ‘Even for an entry-level bike, let’s move the customer slightly upwards’. Likewise, for the 125cc middle segment, Bajaj took a “trusted leadership brand” like Pulsar and extended it downwards without comprising on its values. Once again, this is about elevating the customer in this segment. “The 125cc buyer is an upgrader and he could do with a sports like bike which we have now done with Pulsar,” says Sharma.

As for the 150cc plus sports segment, there are now more options in the form of 250cc bikes which will address the same objective. “For every segment, we are trying to move the customer upwards. We will continue to introduce products in the coming months which will reflect what I am saying,” he adds.

The goal is to give the motorcycle buyer a better value proposition at a higher price which also helps the company in terms of profitability. As Sharma says, nobody had anticipated Covid and revenue for manufacturers will be uncertain as a result.

“Yet, whatever we sell should make better money. We are clear this will only come if we offer something substantive to the buyer, more so during this time when people will tend to be conservative,” he explains.

The key, however, is to remain true to the brand proposition and what the customer expects from it. For instance, KTM (the Austrian bike brand which is now part of Bajaj Auto’s kitty) offers a range in India that extends from 125cc to 790cc motorcycles. Yet, the core DNA of KTM stays intact right across in terms of being on the edge, offering a raw experience, modern and progressive features etc.

This is not the easiest of tasks as in the case of Pulsar 125 which comes from the same platform of the 150/180. This means that “we will not be able to lower its costs beyond a certain point”.

However, the bigger mistake would have been to weaken its key features and DNA by yanking it out of the “core zone” of Pulsar’s equity. This is precisely what Bajaj chose not to do and the Pulsar 125 is in a happy space now.

Discovery lessons

In a way, valuable lessons have been learnt from the Discover brand which was launched as a 125cc bike in 2004. It was initially regarded as a mini Pulsar with its strong attributes of power and performance. The trouble began when Bajaj extended the brand into the 100cc mileage zone.

“What we did to ourselves was that we compromised on our sharp and unique position of a powerful and performance-oriented 125cc and diluted that position with mileage,” says Sharma.

Extending the Discover to a host of avatars only ended up ruining its core ethos even further. “With the learning of being knocked about with Discover, brand strategy is not a function of cc but revolves around key propositions,” he adds.

For now, with Unlock 1.0 underway, things are a lot better for automakers like Bajaj. However, it has been a “very difficult period” over the last few weeks especially at an operating level since there were multiple state agencies involved in the drama.

Contradictory regulations and missives were constantly being fired which made the going even more complex for the company which has three plants spread across Maharashtra and Uttarakhand. The constant back-and-forth in this bureaucratic tangle meant that organising the supply chain was a huge challenge especially with multiple levels of vendors involved. Some were operating in containment zones which made supplies difficult.

While this has now pretty much “started to get some kind of rhythm”, the other challenge emanated from the transport system where capacity was impaired with drivers returning to their hometowns during the pandemic. According to Sharma, transporters have now put in a “huge amount of effort” which has seen vehicles sent to villages and transport these drivers back at higher wages.

While the issue of suppliers and logistics has by and large been sorted out, the real challenge is market demand. While 90 per cent of two-wheeler dealerships have opened up, the bigger question is if customers are coming back.

“In the last week or 10 days, it has reached about 70-80 per cent of what a normal June would have been last year,” says Sharma. The problem is that things still “keeping going on and off” as in the case of Chennai announcing a lockdown from Friday. “You have vendors there and the supply chain will be disrupted. Once again, you need to scramble and try to offset it somewhere,” he says.

As Sharma puts it, things things have fallen in place, demand has moved to 80 per cent levels but the situation remains fragile. “It is not as if it is in rhythm and we need to see how the Covid situation unfolds,” he says.

The single issue that is worrying pertains to the progression of the virus. If it eases, “things start to happen” but the moment there is an interruption/unforeseen event, “everything gets reversed”. Hence, it is still a “fragile recovery” period right now.

Safer, better option

According to Sharma, part of this return to normalcy is also driven by the fact that there was no business for two months. There were lots of people who were “on the pipeline of decision-making” and are closing them now. Market feedback also suggests that there is a reevaluation of two-wheelers as a safer and better option, especially with public transport “likely to be off/on and not wise to use”.

Whether this becomes a firm trend that translates into continued business remains to be seen, cautions Sharma. For now, there is definitely among customers a worry and concern; it is not as things are normal with people returning to the mainstream cautiously.

“What has helped is the timing of the harvest and the money flows into semi-urban/rural areas particularly with the agri industry base,” says the Bajaj Auto ED. This has contributed to better demand even while there are grim realities to contend with in places like Mumbai where Covid-19 is on the rampage and buying motorcycles is the last thing on people’s minds. Sharma also makes an important point: it is not as if the economy was in great shape pre-Covid. “Things were difficult and were were gearing up for a tough 2021 because of BS VI-imposed cost increases,” he says. These were passed on to customers and automakers were bracing for a reaction before Covid came along. “The situation when we entered the Covid zone was in any case a little serious. Nothing has happened to completely reverse all that,” says Sharma.

Published on June 18, 2020

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