Hero number 45!
Hero Honda has become the face of India’s personal transportation. The company has not only given people a set of wheels but also great dreams...

(column by Karan Mehrishi)

Some thing was very peculiar about the launch ceremony of Hero Honda Splendor NXG in May 2007. It appears that Hero Honda (HH) made a deliberate attempt to appear ‘mass friendly’, so much so that every speech (on the launch) given by the top company officials carries a genuine concern regarding mobility and social empowerment. And why not, when Hero Honda prides itself as being the world’s single largest two-wheeler manufacturer (in terms of volumes), and produces 4.4 million units annually. With net profit of Rs.8.5 billion in 2006-07, the company boasts of 2,400 dealerships spread across the length and breadth of the country, a capacity of 13,000 units per day and operates from three different plants. States Brijmohan Lall Munjal, Chairman, Hero Honda, “This year, we sold 15 millionth two wheeler. That’s more than the entire population of a small country! In a span of two decades, this is a feat that few others in the global automotive industry have been able to achieve.”

With its ‘mass friendly’ approach, the new Splendor NXG launch symbolizes the somewhat obsessive ‘entry level’ approach of Hero Honda. The 100cc segment is where the company’s legions lie and where most of its products are positioned. Like a number of private sector companies, even Hero Honda is market driven and a seemingly high focus on this segment makes it a volume player. But at a time when the market is graduating to higher segments, is it logical for any player to stick to the ‘soon to become’ obsolete sectors? Apparently yes! Anil Dua, VP (Sales and Marketing), Hero Honda valiantly told B&E, “Currently we have a 50% market share and that is a very good share to start with. The positioning of the Splendor NXG will be in the 100cc segment as we think that the 100cc is a very large segment and it can sustain more players easily.” To a certain extent we agree because as per an earlier B&E estimation, the 100cc segment forms the core of the market and the Indian consumer depends heavily on it for his daily commuter solutions. On the other hand, the premium segment contributes a miniscule 16.78% to the volumes. Even if we consider a steady growth trajectory of 36% (as per market reports), the premium segment will not be more than 25,00,000 in the next three years. This figure is not even half of the 100cc segment, which will hover close to 60,00,000 units and that too at a much slower 15% growth rate. In April 2006-07, HH sold 239,594 units (SIAM) in the less than 125cc segment, nearly 258% more than what arch rival Bajaj sold in the same period. With such high level of competency, its certainly not logical to think beyond a segment which contributes up to 93.3% towards Hero Honda’s total sales. However, the question that the company really needs to address is that how long can HH sustain this? Auto analyst Tutu Dhawan told B&E, “Hero Honda is very happy being an executive segment (less than 125cc) player, they don’t see much rational as a premium segment player. Hero Honda says that the premium segment forms just 10% (on average) of their market.”

Such arrogance might prove to be expensive for the two-wheeler giant. Consider this: With the Indian economy growing at 8-9%, the Indian consumer will have an increased access to cheap loans, higher disposable incomes and higher aspirational value. As a result the consumers will most definitely graduate to higher segments if not soon. Thus it’s imperative that Hero Honda be ready for any future eventualities. Despite being an early mover, presently HH finds itself a distant fourth in the premium segment behind Bajaj, Honda Motorcycles & Scooters Limited and TVS. Beaten by the trio at its own game, it appears that there is complacency doing the rounds at HH. While the just upgraded CBZ XTreme seems to be the company’s lone sustainer in the premium segment, the 223cc Karizma upgrade has proven to be a big dud! Looks like a premium segment leadership will remain elusive for HH, until of course the company does something drastic.

Now that the entry level game has been further spiced up with the up-gradation of the old workhorse Splendor, isn’t HH holding on a bit too long? When B&E investigated into the matter of HH’s continued infatuation with the entry segment, Dua clarified “When you have a high potential product like the Splendor then you should leverage it fully. The Splendor Consumer is intensely brand loyal, t he re fore the new Splendor NXG will help us retain the consumer within the Splendor family.” As per the company’s annual reports, HH is heavily banking on the 100 million consumers who find themselves under the Rs.200,000 income bracket. The company feels that barely 2% of the Indian hoi polloi are presently covered by the two wheeler industry and there is immense potential at hand. Even though the so called ‘ideal candidates’ might move into the HH territory, there still might be some hiccups! Firstly the Indian hinterlands are still outside the financing purview. And secondly the consumers might have other appealing options. The foray of super affordable cars in the newly formed entry level four wheeler segment will surely lure away some first time buyers and HH along with other ‘entry segment’ dependent players will surely face the heat of this new found ‘four wheeled competition’.

Furthermore, growing demands on natural and economic resources has brought about pressures on the company’s margins. Even though Hero Honda ecstatically claimed that it was the only company to grow at 19% this year (while the entire sector registered negative growth rate at the same time), things won’t be easy as sustaining profits & market share is a paramount requirement. Dua was however quick to point out, “The inflationary figures are encouraging and it seems that the market will expand even though there has been a negative growth earlier. Hero Honda continues to out-compete the market and we are confident that we will improve further.” In a nutshell it can be safely assumed that the market will undoubtedly recover but Hero Honda may not be a major reason behind this overturn. This is evident from the fact that during FY07, net profit fell by 11.74%, the only two wheeler company to report.

He Trailblazer
‘Fill it-shut it-forget-it’, is perhaps one of the most effective add campaigns of all time. For it not only provided a fresh lease of life to the two stroke era but also foresaw a new dawn in the Indian two wheeler industry with the advent of the contemporary four stroke. It takes shrewd business acumen to convert the state of mind of an entire consumer base and HH did that effectively. HH was responsible in changing the perception about the motorcycle. The company can be credited with bringing about the motorcycle revolution in India and the subsequent change of guards in the motorcycle’s favour (from the scooter) as an efficient and affordable commuter solution.

The company tasted success with its CD 100 class motorbikes and eventually launched a slew of other models including the most successful motorcycle ever – Splendor. Also, HH did not restrict itself to the entry level segment but moved up the value chain to test the waters of the premium segment too. India’s first true premium bike – CBZ was launched by HH in the year 1999 while the Karizma was unleashed in the year 2003. The 156.3cc CBZ motorcycle was a runaway success and combined with the intoxicating 223cc Karizma, transformed Hero Honda’s image from a manufacturer of small capacity bikes to large capacity motorcycles. However, unlike the complacency that bogs the HH in the premium segment has surprisingly not set in the less than 125cc segments. To maintain its supremacy, all these years HH has been relentlessly updating & modifying its model range. The Splendor NXG & the Achiever are models, which are updated versions of some of the best selling bikes from the HH stable. You don’t become number one for nothing!

Success Mantra
Undoubtedly it has been the 100cc Splendor that helped Hero Honda reach the pinnacle of success. Splendor’s engineering was very similar to the CD100 platform – a bike for the fuel conscious. Though, the bike was in line with the ‘fill– it-shut-it-forget-it’ add campaign, which gave greater emphasis to fuel economy and helped establish HH as a credible brand; the bike offered something which was not very synonymous with HH and that was ‘style’. After the launch of the CD100 and Sleek models, HH finally understood the market realities prevailing in the Indian market. Through close market study & analysis HH understood consumer requirements and perfected its already fuel efficient products. Instant success of Splendor meant that Hero Honda grew at a phenomenal 450% over a span of ten years, from 1989 to 1999.

The smarter consumer was feeling insecure about rising fuel bills and the consumer now wanted a motorcycle, which offered decent power delivery but most importantly had the inherent quality of saving some green back. Hero Honda, as a matter of chance, had already established it self as a manufacturer of fuel efficient bikes and had perception in its favour.

The Hero Honda Splendor right from the day of its inception has been a super seller and enabled the parent company to explore never before levels of production dynamics. The Japanese connection gave Hero Honda access to varied Honda technologies, indigenization of which gave very efficient combinations of fuel efficiency, affordability and reliability. Now Hero Honda simply has to maintain the momentum it has accumulated throughout these years of learning and expansion. Now that the competition has become more fierce, Pawan Munjal, MD & CEO, Hero Honda has already laid down his next wave of attack, as he says, “As we ride into the future, we expect to pursue growth opportunities systematically and aggressively.

(End of Karan Mehrishi column)