TEACHING NOTE SUMMARY: Bajaj Auto Limited (BAL) is one of the leading players in the Indian two-wheeler market, the second largest two-wheeler market in the world. The case traces the company’s rise to dominance in the scooter segment of the market, and its eventual fall, against a backdrop of changes in customer tastes and preferences. It describes the reasons for the shift in demand and discusses the initiatives that the company undertook to regain lost ground.
The case also discusses the competition in the Indian scooter market, and ends with a brief discussion on recent developments in the two-wheeler market.
TEACHING OBJECTIVES AND AUDIENCE: This case study is intended to help students to: Examine the evolution of an industry — specifically, the Indian two-wheeler industry -over time, and the challenges faced by the dominant players with the industry being liberalized and opened up to competition. Appreciate the impact of the economic, social, and cultural changes on the fortunes of an industry.
Analyze the strategies adopted by a company to stay relevant in a changing environment. Understand the importance of keeping track of changing customer changing needs and preferences and adopting a customer-oriented product strategy. Gain insights into competition in the Indian two-wheeler market. This case study is meant for students of MBA/PGDBM and is designed to be a part of their Business Strategy curriculum.
Teaching Approach & Strategy
The case study may be used in classroom discussions or in distance learning. The moderator may begin the discussion by asking participants about the desired features in a two-wheeler.
This may be followed by a discussion on the changes taking place in the economic, social, and cultural environment, and the reasons for the shift in demand in favor of motorcycles in India. Larger lessons may be drawn, based on this discussion, on the impact of such changes on different industries. The participants may also discuss the impact of liberalization of the two-wheeler industry, particularly on companies such as BAL, which had managed to thrive in a closed and protected market, and also on the average Indian consumer.
They may then be asked to assess the future prospects for scooters in India, and the extent to which the strategies adopted by BAL would be effective in helping the company regain a leading position in the scooter market. Sony Corporation – Losing Competitive Advantage Some questions that can be asked to promote discussion of the case are: Discuss the changes in India’s economic, social and cultural fabric, post liberalization. What are the changes that were the most significant from the point of view of the Indian two-wheeler manufacturers? What, in your opinion, contributed to the near-iconic status of the Bajaj/Chetak brand?
Was its popularity actually due to its quality or due to the non-availability of alternative choices for the customer? What changed with liberalization? Do you think BAL’s position as a near-monopoly manufacturer in the market left it unprepared for the challenges – particularly in the areas of customer satisfaction and technological innovation – of a liberalized market and greater competition? Motorcycles have grown in popularity and have replaced scooters as the favorite twowheeler in India. BAL too altered, albeit belatedly, its product portfolio to suit changing customer preferences.
However, was BAL correct in shifting focus away from the scooter market? Was it possible for the company to straddle the motorcycle as well as the scooter market? Do you think the sales of scooters will grow in the future? If yes, what, in your opinion, would be the drivers of this growth? What can BAL do to become a large player in the scooters segment once again?
Analysis
Discuss the changes in India’s economic, social and cultural fabric, post liberalization. What are the changes that were the most significant from the point of view of the Indian twowheeler manufacturers?. During the 1990s, the Indian two-wheeler market experienced a huge change in terms of consumer tastes and preferences. Scooters, which were the preferred two-wheeler earlier, gave way to motorcycles. This shift was a result of the social, economic and cultural changes that took place in India following economic liberalization in the early 1990s. Post-liberalization, the Indian economy grew rapidly and the average disposable income of the Indian middle class, who were the largest customer segment for two-wheelers, also increased.
Customers were also exposed to foreign media and became aware of global trends, leading to a rise in their aspiration levels. Liberalization allowed many MNCs to enter the Indian market through joint ventures. With their entry, customers were provided with better designed and technologically superior products and greater choice. In the two-wheeler market too, companies like Honda, Yamaha, and Suzuki entered India and launched motorcycles with the latest technology and in innovative designs. Liberalization also led to an increase in customer finance options, which were almost absent in the 1980s or earlier.
Banks (especially private banks) began to provide two-wheeler loans. Earlier, Indians, in general, were not too eager to take loans to buy consumer durables. However, this attitude changed gradually and by the 2000s, taking personal loans became commonplace. The Indian population was also undergoing a demographic change, with the proportion of younger people in the overall population increasing. The youth, who are probably influenced most by media, started preferring powerful and stylish motorcycles to scooters.
Higher incomes, easy finance options, greater penetration, and better products, together with higher aspiration levels, contributed to a drastic change in the Indian two-wheeler market in the mid- and late 1990s. Each of these changes had an impact on the demand pattern vis-a-vis scooters, motorcycles and mopeds. 2 Sony Corporation – Losing Competitive Advantage What, in your opinion, contributed to the near iconic status of the Bajaj/Chetak brand? Was its popularity actually due to its quality or due to the non-availability of alternative choices for the customer?
What changed with liberalization? Do you think BAL’s position as a nearmonopoly manufacturer in the market left it unprepared for the challenges – particularly in the areas of customer satisfaction and technological innovation – of a liberalized market and greater competition? 2. The Chetak was one of the first offerings in its category from an Indian manufacturer. BAL launched the Chetak in 1972 under the Bajaj brand. The near-iconic status of the Chetak was a result of several factors. To begin with, the name “Chetak” was associated with Indian heritage.
The scooter was named after the famous horse of the great Rajput ruler, Maharana Pratap Singh. According to folklore, the horse saved his master’s life in battle. In essence, “Chetak” stood for loyalty and dependability. More than the name, the Chetak was a product that was ideal for its times. It was quite affordable and within the budget of an Indian middleclass family. It was versatile; the Chetak was used for transporting people, for carrying luggage, etc. In the 1970s and 1980s, Indian roads in most cities and towns were pothole-ridden and the Chetak could withstand these bad road conditions.
The technology that went into the Chetak was simple and therefore the owner could have the scooter serviced/repaired by roadside mechanics (the company did not have a very elaborate service network then). The spare parts were easily available and were reasonably priced. The Chetaks also had good resale value. In sum, the Bajaj Chetak was value for money and a vehicle that the customer could rely on throughout his life. In its advertisements, popularly known as the “Hamara Bajaj” (our Bajaj) ad campaign, BAL promoted the Chetak on “Indianness”. The ads tried to capture the values and ethos of the Indian middle class – its target market.
The use of the word “Hamara” (our) was an effort to convey the pride of owning something Indian. The ads showed slice-of-life situations where the entire family used the Chetak. The advertisement campaign also contributed to the iconic status of the Chetak. However, one could argue that customers purchased Bajaj scooters because they had limited choice. In the 1970s and 1980s, the Indian two-wheeler market was considered as a “seller’s market”. The market was heavily regulated, with companies required to secure a multitude of licenses. Also, foreign firms were not allowed to enter.
Bajaj scooters competed with the likes of Lambretta (a fuel guzzler) and Vijay. In comparison with its competitors, Bajaj scooters were superior in terms of fuel-efficiency and other critical factors. Therefore, it is possible that Bajaj/Chetak would not have gained a near-iconic status had there been more competition, especially from global players like Honda, Yamaha, etc. Bacause of limited competition, it was possible that Bajaj became complacent and did not feel the need to upgrade in terms of technology or design. The company spent little on R&D and customer service in that period.
However, with liberalization, and the entry of foreign players, the market changed significantly. Customers now had greater choice. New models with greater fuel efficiency and more stylish looks were introduced, while Bajaj continued to sell the same models, with minor changes. The MNC manufacturers tied up with banks and other financial institutions to provide easy finance options to the customer. This helped expand the market. Customers could afford motorcycles, which then were usually costlier than scooters. As a result of these factors, the Indian two-wheeler market started shifting from scooters toward motorbikes.
Despite being the undisputed leader of Indian two-wheeler market in the 1970s, 1980s, and till the mid-1990s, BAL failed to read the market trends. Though it later achieved success in the motorbike segment with its CT100, Pulsar, and Discover models, Bajaj slipped in the scooter 3 Sony Corporation – Losing Competitive Advantage market. It should have upgraded its scooters and launched new models, especially in the gearless segment. Though there were a few gearless models like the Spirit, the Sunny, the Saffire, etc. , they seemed to have technical problems, which indicated that BAL’s R&D efforts were insufficient.
BAL’s mistakes allowed the competition, especially Honda, to grow. Motorcycles have grown in popularity and have replaced scooters as the favorite two-wheeler in India. BAL too altered, albeit belatedly, its product portfolio to suit changing customer preferences. However, was BAL too hasty in shifting focus away from the scooter market? Was it possible for the company to straddle the motorcycle as well as the scooter market? BAL started giving more importance to motorcycles since the late 1990s. Although it tried to revive scooter sales in the early 2000s by launching new models and upgrading the old ones, it failed in its efforts.
By early 2006, it stopped production of two of its highest selling scooter models – Chetak and Super. And by mid-2006, BAL’s market share in the scooter market had slid to 2% – the lowest ever. The scooter market could be divided into two categories – geared and gearless. Geared scooter models were unlikely to regain their popularity because they were inconvenient. Though the sales of geared scooters continued to fall, the market for gearless scooters was recording steady growth. The target market for gearless scooters consisted of teenagers, women, and middle-aged as well as older people.
This market has come to be dominated by Honda with its Activa model and TVS with its Scooty Pep model. Hero Honda had launched the Pleasure, a gearless scooter, in early 2006, targeting women. This model was seeing good sales. Also, a series of new launches were awaited from Kinetic Motor Co. in this segment. New model launches and Honda’s success with its Activa would suggest that BAL made a mistake in shifting focus away from the scooter market. Honda manages to sell 0. 5 million units every year, which showed that the customer was still interested in scooters, provided the model met their needs.
With years of experience in the scooter market, BAL should not have allowed competitors to take away market share. It should have launched new scooter models with improved fuel efficiency, sleek styling, greater number of features, at value-for-money prices. It is possible for Bajaj to straddle the two segments, especially given the fact that the distribution and service networks for the two segments were common. There are several examples of companies with successful products in two or more segments of a market. For example, Toyota successfully markets luxury cars (Lexus), small ars (Daihatsu), sedans, SUVs, MUVs, etc (Toyota). Samsung is a successful marketer of LCD monitors, plasma TVs, and CRT TVs. As of 2006, BAL was planning to launch new gearless scooter models. However, it remains to be seen whether it succeeds in regaining market share. Do you think the sales of scooters will grow in the future? If yes, what, in your opinion, would be the drivers of this growth? What can BAL do to become a large player in the scooters segment once again? The scooter segment has enough potential for growth. The sales of gearless scooters have posted a growth of 20% since 2003.
The women, the elderly and the first time user (teenagers), are likely to continue to prefer gearless scooters even in the future. For women, especially those who prefer to wear traditional Indian dresses, the motorcycle is not an option – instead, they would have to go with scooters. With an increase in the number of working women, the sales of gearless scooters in this customer segment is expected to rise. Also, with both parents working, and a steady rise in disposable incomes of Indian middle class families, parents may buy two-wheelers (most likely gearless scooters) for their teenage children.
Sony Corporation – Losing Competitive Advantage As and when manufacturers introduce more powerful, fuel-efficient, and stylish gearless scooter models, even young men/executives might opt for scooters. BAL could launch different models targeting different customer segments (women, teenagers, men, etc) at different price points. Customers in the gearless scooter market had unique sets of needs. For instance, women (including female teenagers) might look for light-weight scooters, while male teenagers might want powerful scooters. Middle-aged men might want greater fuel-efficiency, while older people might look for easy maneuverability.
All customers might seek styling; however the youth might give styling more emphasis. BAL has to understand the needs of each segment and launch products to suit their needs. BAL should also launch effective communication campaigns for its scooter models, as and when they are launched. The campaign should try and improve the image of scooters. BAL’s scooter models should be priced competitively so that customers get value for their money. Considering that fuel prices in India were quite high, BAL might consider launching electric scooters or scooters that run on alternate fuels like LPG, or CNG.
If BAL hopes to regain market share, it will have to launch several models, thus providing choice to the customer. It could look at sharing some of the parts on different models, so as to reduce costs. Sony Corporation – Losing Competitive Advantage
References & Suggested Readings
- How hamara bajaj became a sign of independent India, www. moneycontrol. com, August 1, 2006.
- Surajeet Das Gupta, New! Improved! Bajaj? www. business-standard. com, July 8, 2006.
- Bajaj Auto to invest Rs. 1,500 crore; to expand capacity to 51 lakh units, www. domain-b. com, March 13, 2006.
- Bajaj retires Chetak, Super: dealers stop taking orders, http://news. hitavadaonline. com, March 10, 2006.
- Hero Honda launches “Just 4her”, www. herohonda. com, January 20, 2006.
- Bajaj bids adieu to hamara Chetak, http://bsnl. in, January 04, 2006.
- Bajaj slams brakes on Chetak, www. indiacar. com, January 03, 2006.
- Bajaj motorcycles lead industry growth, www. domain-b. com, 2005.
- Two wheelers: looking back, www. automonitor. com, in 2005.
- Neha Kaushik, The scooter surge, www. thehindubusinessline. com, August 05, 2004.
- N. Shatrujeet, Bajaj Chetak: Riding on a value system, www. gencyfaqs. com, 2004.
- Gaurav Choudhury, Innovative scooter models on cards, www. tribuneindia. com, September 21, 2003.
- K. Krishnakumar, Two wheelers: charge of the motorcycles, www. thehindubusinessline. com, May 19, 2002.
- Manoj Kumar & Shveta Pathak, Youths embrace high-power bikes, www. tribuneindia. com, April 2002.
- Sandeep Unnithan, The doughty old scooter is overtaken by the motorcycle-despite a spirited fight back, www. india-today. com, April 2001.
- N. Shatrujeet, Lintas renews tryst with Hamaara Bajaj anthem, www. agencyfaqs. com, September 29, 2001.
- Brian Carvalho and Swati Prasad, Bike Wars, www. india-today, September 16, 2001.
- Economy Models of Bajaj Chetak, Super to be Cheaper by Rs 5,000-8,000, www. bajajauto. com, December 2000.
- Neena Haridas, The two-wheeler market in India is moving towards motorcycles, www. rediff. com, January, 2000.
- Industry watch: Two-wheelers, http://iw. sify. com, December 18, 1999.
- www. scootervillemn. com.
- www. bajajauto. com.
- www. automonitor. com.
- www. indiainfoline. com.
- http://auto. indiamart. com.
- www. indiacar. com.
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- http://siadipp. nic. in.
