Bajaj Auto Ltd.: Overtaken in the Indian Scooter Market

Question Paper
Integrated Case Studies – I (MB371) : October 2007
Case Study (100 Marks)
• This section consists of questions with serial number 1 - 7.
• Answer all questions.
• Marks are indicated against each question.
Case Study
Read the case carefully and answer the following questions:
1. “During the 1980s, BAL was the undisputed scooter king.” Examine the factors that, according to you,
contributed to the near iconic status of the Bajaj/Chetak brand?
(16 marks) < Answer >
2. “By early 2000s BAL lost its title of India’s largest two-wheeler company.” Was BAL unprepared for the
challenges particularly with respect to consumer satisfaction, technological innovation, competition etc.?
Justify.
(15 marks) < Answer >
3. “By early 1990s it was clear that BAL had no future in the scooters segment.”
a. Broadly explain the product life cycle of Chetak.
b. Analyze the strategies BAL adopted to extend the life cycle of its scooters, in the changed
competitive scenario.
(7 + 7 = 14 marks) < Answer >
4. “While the new launches helped the company offer a wider range of two-wheelers to its customers, they
also helped it to refresh its image.” Assess the image makeover efforts of BAL.
(10 marks) < Answer >
5. “In the early 2000s, with new motorcycle launches in every segment, BAL’s product portfolio changed
dramatically.” Evaluate the overall product portfolio of BAL in the two-wheeler segment, 1970 onwards.
(15 marks) < Answer >
6. “In 1990s the popularity of geared scooters began to wane while that of motorcycles soared.” Discuss the
economic, social and cultural factors that influenced the Indian two-wheeler market, post liberalization.
(15 marks) < Answer >
7. “Though the motorcycle had become the favorite two-wheeler of the Indian customers, most analysts did
not expect the demand for scooters to disappear.” In this light,
a. What is the future outlook for BAL?
b. What are the prospects for two-wheeler industry in India?
(9 + 6 = 15 marks) < Answer >
Bajaj Auto Ltd.: Overtaken in the Indian Scooter Market
“Like Volkswagen Beetle, the product (Bajaj Chetak) had lost its relevance.”
[1]
– Rajiv Bajaj, MD, Bajaj Auto Ltd., in January 2006.
“The scooter segment in India is over one million units and the segment has been witnessing an impressive
growth for the past few months. Further, there is a huge untapped segment of women customers, which offers
immense growth potential.”
[2]
– Pawan Munjal, MD, Hero Honda Motors Ltd., in January 2006.
“Fact is, Bajaj was slow in reading the shift from scooters to motorcycles.”
[3]
– An article in Business Today, in 2001.
INTRODUCTION
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In January 2006, Bajaj Auto Limited (BAL), a major Indian manufacturer of two- and three-wheelers,
announced that it had stopped production of Bajaj Chetak, its flagship scooter model. The Chetak, a geared
[4]
scooter, had reigned over the Indian two-wheeler market in the late 1970s to early 1990s and had come to
occupy a near-iconic status. According to Rajiv Bajaj (Rajiv), managing director, BAL, the company had
produced about 10 million Chetak scooters before the model was discontinued.
In the mid-1940s, BAL started as an importer of two- and three-wheelers. In the early 1960s, BAL, in
collaboration with Piaggio
[5]
, started manufacturing Vespa brand scooters at its plant near Pune, Maharashtra.
With its collaboration with Piaggio coming to an end in the early 1970s, BAL started manufacturing scooters
under the Bajaj brand. The Chetak, BAL’s first scooter model under the Bajaj brand, was introduced in 1972.
In the 1970s and 1980s, scooters dominated the Indian two-wheeler market. Most middle-class Indians preferred
scooters because of their durability, low maintenance costs, and versatility, and the Bajaj Chetak name became
synonymous with scooters. At that time, the motorcycles available in India were heavier and not as fuel efficient
as scooters. They were also costlier.
In the late 1990s, the Indian two-wheeler market witnessed a shift in consumer preferences. The popularity of
geared scooters began to wane while that of motorcycles soared. There were various reasons for the shift – India
was undergoing a demographic change, with the proportion of younger people in the population growing
significantly; the economy was growing, which increased the disposable incomes of the middle class; also, many
newer models of motorcycles, with improved designs and modern technology had become available in the
market. While these changes were taking place in the market, the features of scooters, especially those of the
Bajaj Chetak, remained essentially unchanged. Consequently, by the early 2000s, motorcycle sales surpassed
that of scooters and BAL lost its title of India’s largest two-wheeler company to Hero Honda
[6]
.
Scooters were BAL’s main products, and when market preferences shifted to motorcycles, the company was
faced with declining sales and revenues. In an attempt to recapture market share, BAL decided to reorient its
business, launching a series of new motorcycle models, which halted the downward trend in sales. It did not
want to give up on scooters either. It launched new scooter models and upgraded existing ones. However, with
the introduction and subsequent popularity of Honda Motorcycle and Scooter India (HMSI)
[7]
scooters,
especially the Activa, a gearless
[8]
scooter, BAL lost its dominance over the Indian scooter market as well.
In 2005-06, scooter sales in the Indian market were around one million units annually, and consisted
predominantly of gearless scooters. Even as it phased out the Bajaj Chetak, BAL was making efforts to regain
market share in the scooter market. In early 2006, BAL announced that it would launch two new models of
gearless scooters in 2006-07. However, with new scooter launches from Hero Honda and Kinetic Motor
Company Ltd.
[9]
, analysts felt that it would be an uphill task for BAL to once again become the largest scooter
manufacturer in India.
BACKGROUND NOTE
The Bajaj group was founded in 1926 by Jamnalal Bajaj (Jamnalal) (Refer Exhibit I for the companies in the
Bajaj group as of 2005). In 1945, Kamalnayan Bajaj, Jamnalal’s son, set up Bachraj Trading Corporation Ltd.
(BTCL), a trading company, to import and sell two- and three- wheelers. This business continued till 1959.
In 1959, the company secured a license from the Government of India (GoI) to manufacture two- and threewheelers.
In 1960, BTCL was renamed Bajaj Auto Ltd. (BAL) and the company went public. The same year, it
entered into a technical collaboration with Piaggio for the manufacture of scooters. It started the production of
scooters in 1961, and three-wheelers in 1962. Until 1971, the two-wheelers were sold under the Vespa brand. In
1971, the agreement with Piaggio ended and the company began selling scooters under the Bajaj brand.
In 1972, the Bajaj Chetak
[10]
, a geared scooter with a two-stroke engine, was introduced (Refer Exhibit II for a
photograph of the Bajaj Chetak). In 1975, BAL entered into a joint venture with Western Maharashtra
Development Corporation (WMDC)
[11]
. The JV was called Maharashtra Scooters Limited (MSL). BAL held a
24% stake and WMDC a 27% stake in the JV, with the remaining 49% being held by private investors.
[12]
BAL
marketed the two-wheelers manufactured by MSL under the Priya brand. This JV was the result of the
technology transfer policy
[13]
of the GoI.
BAL introduced the Bajaj Super, another geared scooter, in 1976. In 1980, Bajaj America Inc. was set up as a
subsidiary of BAL.
Over the years, BAL became one of the lowest-cost manufacturers of scooters not only in India, but also
globally. Although BAL’s flagship scooter models – the Chetak and the Super – were not very stylish, they
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compensated for this lack of style with their sturdiness of build and ease of maintenance.
In 1986, BAL entered into a technical partnership with Kawasaki Heavy Industries
[14]
of Japan to produce
motorcycles, launching the first model, the Kawasaki-Bajaj KB100, in the same year. Also, the company
developed an 80 cc moped on its own and marketed it as the Bajaj M80.
In 1990, the Bajaj Sunny was introduced in the small scooter or scooterette category. The Bajaj Classic, yet
another geared scooter model, was introduced in 1994.
Two motorcycle models – the Bajaj Boxer and the Bajaj Caliber -- were launched in 1997 and 1998 respectively.
Two scooter models, the Legend and the Spirit, were also launched in this period. While the Bajaj Legend was
India’s first four-stroke scooter (geared), the Spirit was a gearless scooterette. In 1998, BAL entered into a tie-up
with Cagiva
[15]
, an Italian company, in an effort to improve its design capabilities. Subsequently, more stylish
versions of the Chetak, the Super, and the Classic were launched. In 1999, the company launched the Bravo, a
geared scooter.
In 2000, BAL launched the Saffire, a gearless scooter with a four-stroke engine and self-start. In 2001, it
introduced the Pulsar (in 150 cc and 180 cc engine capacities) and the Eliminator (175 cc engine capacity). Both
these motorcycles were priced higher than the existing models and targeted the premium segment. In 2003, BAL
introduced Digital Twin Spark Ignition (DTSi) technology
[16]
in its Pulsar models.
In 2004, BAL created a new logo and brandline in a bid to renew its brand identity. The new logo was designed
to symbolize confidence and excitement (Refer Exhibit III for the logo). In 2005, the Saffire was relaunched as
the Wave, with a new engine with DTSi technology. Two more motorcycles, the Avenger and the Discover, were
also introduced the same year. In early 2006, BAL launched the Platina, a 100cc motorcycle.
As of June 2006, the Indian two-wheeler industry was the second largest in the world, trailing behind only
China, and estimated to be around 7.5 million units in sales. BAL sold around two million two-wheelers in 2005-
06
[17]
.
BAL AND THE INDIAN TWO-WHEELER MARKET
Between the mid-1950s and 1980s, the Indian industry operated under what was popularly termed the “License
Raj”
[18]
. During this period, entities that wanted to produce two-wheelers were required to secure licenses from
the GoI. The production capacity was also determined by the GoI. The domestic market was protected from
foreign competition with the GoI restricting direct import of completely built vehicles by imposing quantitative
restrictions as well as high tariffs on them.
In the 1950s, there was only one scooter manufacturer in India – Automobile Products of India (API), which
started manufacturing scooters and mopeds in 1955. It manufactured the Lambretta
[19]
under license from Italybased
Innocenti Ltd. During this period, there were also motorcycle manufacturers like Enfield India Ltd.
(Enfield)
[20]
, Ideal Jawa Ltd. (Jawa), and Escorts Ltd. (Escorts)
[21]
(Refer Exhibit IV for a list of companies
operating during 1955-80). Enfield initially imported the Bullet, a 350 cc motorcycle, from the UK. It started
manufacturing it in India in 1956. Bangalore-based Jawa sold the Yezdi brand of motorcycles, and Escorts sold
the Rajdoot, a 175 cc motorcycle which was popular in rural areas.
In the 1960s, the GoI encouraged local companies to enter into collaborations with foreign firms so that they
could gain technological expertise. BAL started manufacturing Vespa scooters in 1961 in collaboration with
Piaggio. In the early 1970s, with BAL starting to manufacture scooters under the Bajaj brand, it slowly overtook
API in sales, as the latter shifted toward the production of three-wheelers. Through the 1970s, scooters became
very popular and were preferred to motorcycles for several reasons. First, scooters were cheaper (by around
30%) than motorcycles. They were more economical to run as well as to maintain. Also, owing to their bulk and
weight, the motorcycles available at that time were not suitable for everyone, and one had to have above average
strength to handle them.
During the 1970s, two-wheeler sales recorded high growth rates (around 15% p.a)
[22]
. This growth was partly
attributed to the inefficient public transport systems in the country’s towns and cities, which led to a greater
demand for personal transport. With only a small section of the population able to afford cars (the supply of
which, as well as the choices available, was also limited due to the License Raj), two-wheelers offered the only
practical personal transport option for the masses. Also, with fuel costs rising steeply during the period, even the
people who owned cars purchased two-wheelers, which they usually used for short trips and errands. Two of
BAL’s most successful scooter models (the Chetak and the Super) were launched in the 1970s.
During this period, the two-wheeler market, like the markets for most other consumer goods in India then, was
completely a seller’s market. The demand for two-wheelers far outstripped supply, a situation which persisted
until the mid-1980s. As a result, customers typically had to wait for a couple of years for their vehicles to be
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delivered. At the peak of its popularity, the waiting period for the Bajaj Chetak was anywhere between 10 and 12
years. As Rahul reminisced, “In North India, for two or three decades, marriages did not happen without a
Chetak. It was a compulsory dowry
[23]
item.”
[24]
Through the 1970s and 1980s, Indian industry was restricted and controlled by the GoI through legislations such
as the MRTP Act
[25]
and FERA
[26]
. Even though the GoI’s thrust on setting up manufacturing units in India
paved the way for the initial development of the auto industry, the “closed market” resulted in a lack of
technological innovation. Although Indian two-wheeler firms had entered into technical collaborations in the
1960s, the foreign firms were not always very keen on parting with their latest technologies/designs. Since
Indian firms invested next to nothing on R&D, they were entirely dependent on their foreign partners for
technology. Owing to their obsolete technology and design, motorcycles manufactured in India during that
period were not fuel-efficient. As a result, sales were very low and this segment stagnated through the 1970s.
Compared to motorcycles, the scooter and moped segments were technologically more self-sufficient and
attracted new entrants like Scooters India Limited (SIL)
[27]
and Kinetic Engineering Limited (Kinetic)
[28]
.
The GoI made several policy changes in the 1970s and early 1980s to give an impetus to the auto industry. In
1980, the focus was on modernization, encouraging technology upgradation and promoting healthy competition
in the domestic market. As part of these policy initiatives, the GoI allowed foreign auto companies, mostly from
Japan, to enter the Indian market through joint ventures with Indian companies. The foreign automobile
manufacturers too were eager to grab the opportunity of exploiting an underserved market. “When the Japanese
players entered the Indian market, the only route available then was through a JV and they wanted to take on the
market completely which was dull and unexplored completely at that point of time,”
[29]
said an analyst at Karvy
Stock Broking
[30]
.
Japanese companies like Honda Motor Co. Ltd., (Honda)
[31]
, Suzuki
[32]
and Yamaha
[33]
started their
operations in India through joint ventures with Indian companies like Hero Cycles Ltd
[34]
(Hero), TVS
[35]
,
Escorts, etc. All these joint ventures were in the motorcycle segment. The foreign firms came with the latest
technology and efficient production systems, which dramatically improved the quality of the motorcycles
available in the market. Soon, the JV companies started introducing more new models with contemporary
technology, styling, and greater fuel efficiency.
In the scooter segment, LML (India) Ltd.
[36]
entered into a joint venture with Piaggio in 1982 to produce the
Vespa in India. The LML Vespa, as it was called, sold well in the 1980s and 1990s and came second to the
Chetak in sales in that period. In 1984, Kinetic tied up with Honda and introduced new models of scooters with
features like self-start and automatic gear transmission. The Kinetic Honda scooter proved to be popular with
women and the elderly because of its convenience.
However, BAL scooters continued to dominate the two-wheeler market through the 1980s and early 1990s. The
Bajaj Chetak and the Bajaj Super, with their value-for-money appeal, durability, and versatility, were the
preferred two-wheelers for middle class Indians. They were also cheaper to own and maintain, and spare parts
too were easily available. The ‘Hamara Bajaj’ ad campaign, launched in the early 1990s, also contributed to
strengthening the Bajaj brand. The advertisements, which prominently featured the Chetak, were successful in
positioning the Bajaj brand as a reliable and trustworthy one.
THE TURNING POINT
The early 1990s saw a recession in the Indian two-wheeler market. Overall sales of two-wheelers declined by
15% in 1991 and 8% in 1992
[37]
. This period also saw a steep rise in fuel prices, which resulted in consumers
placing greater emphasis on fuel efficiency when purchasing a new two wheeler.
However, even as late as 1997-98, the scooter segment was the largest sub-segment in the two-wheeler market.
Scooters, with 42% of the market (in terms of unit sales), were followed by motorcycles (37%), and mopeds
(21%).
[38]
Within the scooter segment, BAL and MSL together had a 61% market share followed by LML
(24%), Kinetic Honda (9%), and TVS Suzuki
[39]
(2%).
[40]
However, in the late 1990s, the pattern of demand changed and motorcycles became the fastest growing segment
of the two-wheeler market (Refer Exhibit V for the shares of scooters, motorcycles, and mopeds between 1996
and 2005). Motorcycles were no longer perceived as accident-prone, non-utilitarian, and bulky; instead, people
started buying them for their fuel-efficiency, power, and later, even for their style.
Also, the Indian economy was beginning to grow rapidly. This growth was palpable even in small towns and
rural areas where a number of households saw their incomes rise, opening up a new market for two-wheelers. In
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these regions, motorcycles were preferred to scooters because of poor road conditions. Motorcycles, with better
ground clearance, stronger suspensions, and larger wheel bases, performed well on village roads and, therefore,
were more practical than scooters. Their greater fuel economy was an added bonus. One customer explained, “…
it [motorcycle] is economical in the long run, as the average [mileage] of bikes [motorcycles] is more than 60
kmpl as compared to about 40 kmpl of any scooter. Further it would fetch good market value even if I decide to
sell it in future.”
[41]
At the same time, demographic changes too were taking place in India, with the proportion of younger people in
the overall population increasing. Motorcycles, with their improved styling and power attracted young men more
than the staid products sold by BAL and other scooter manufacturers. Further, lower interest rates on vehicle
loans made motorcycles more affordable.
[42]
Motorcycles were also fast replacing scooters as the preferred
dowry item. As one consumer said, “I want to give the costliest bike [motorcycle] to my son-in-law in the
marriage of my daughter.”
[43]
The sales of motorcycles surpassed that of scooters for the first time in 1999 (Refer Table I for two-wheeler sales
between 1996 and 2000). Hero Honda became the new market leader with its Splendor, a 100 cc motorcycle,
proving to be a blockbuster product. The company’s communication campaign – “Fill it, shut it, forget it” –
highlighted the fuel efficiency and the low maintenance costs of the model. When asked about the demand shift,
Sanjiv Bajaj, executive director, BAL, said, “With consumer preference changing from scooters to motorcycles
we were unable to hold onto the number one position and had to relinquish it to a company (Hero Honda) that
had only motorcycles in its product portfolio.”
[44]
Table I
Two-Wheeler Sales in India between 1996 and 2000 (Units)
Source: www.indiainfoline.com.
In 1999-2000, scooter sales fell by around 75,000 units, while motorcycle sales increased by more than 400,000
units. This shift in demand took its toll on BAL, the market leader till then. “The bottom fell out of the scooter
market and we were the scooter king. We were part of that huge fall. We had volumes falling 40% year-on-year.
When scooters were 80% of our total business, there was a lot of pressure. If you saw analyst reports in the
market, many of them were predicting the end of Bajaj Auto,”
[45]
said Sanjiv.
Further, a new set of emission norms – Bharat Stage II (equivalent to Euro II emission norms) – for petrol twostroke
engines
[46]
came into effect in 2000 (Refer Exhibit VI for vehicular emission norms in India). With this
development, scooters with two-stroke engines fell out of favor. This was a blow to BAL, which primarily sold
two-wheelers with two-stroke engines.
BAL FIGHTS BACK
Following the ‘Motorcycle Way’
By the end of FY 2000, the numbers clearly indicated that consumer preference had shifted firmly toward
motorcycles with four-stroke engines, and industry watchers predicted that this trend would continue. Geared
scooter sales registered a fall of 41% in 2001. “The market has shifted to motorcycles. We will have to follow
the trend,”
[47]
said Venu Srinivasan, chairman, TVS.
BAL realized, though rather belatedly, that it would have to cater to the changing consumer tastes and
preferences, if it had to survive. Rajiv, who later agreed that BAL had been slow in reading the demand pattern,
said, “See, the company failed to anticipate the consumer behavior. We all thought that we are going in the right
direction, but we were not. We are to be blamed for our market dominance slipping because we did not see it
coming. How else will you explain it – our research or market experience should have shown in advance that the
market is moving toward motorcycles.”
[48]
In an attempt to regain market share, BAL increased its production of motorcycles by 67.6% in 2001 even as the
production of geared scooters fell by 44%. By 2001, the company was manufacturing as many motorcycles as
geared scooters (Refer Table II for the production details).
Table II
FY’96 FY’97 FY’98 FY’99 FY 2000
Scooters 1,222,649 1,301,051 1,262,699 1,325,868 1,253,969
Motorcycles 809,527 978,682 1,131,314 1,395,657 1,796,734
Mopeds 626,112 683,756 648,842 681,902 726,075
Total twowheelers
2,658,288 2,963,489 3,042,855 3,403,427 3,776,778
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Production Details of BAL (2000-2001)
Source: www.myiris.com.
In the early 2000s, with new motorcycle launches in every segment, covering each price point, BAL’s product
portfolio changed dramatically. While improved versions of the Boxer and the Caliber motorcycles were
launched in the executive segment, the Pulsar (175 cc) was launched in the premium segment and the Eliminator
(175 cc) was launched in the cruiser
[49]
segment.
While the new launches helped the company offer a wider range of two-wheelers to its customers, they also
helped it to refresh its image. “This is also part of our changing image – it is part of our looking stylish with
more choice and high performing vehicles,”
[50]
said Rajiv.
With the Chetak as its flagship brand, BAL was widely perceived as a “scooter company”. With the overall
scooter market facing a slowdown due to the growing popularity of motorcycles, the overwhelming image of a
scooter company that had once been nurtured through the “Hamara Bajaj” ad campaign in the 1990s, seemed to
be working against the company. As Nitin Kochar (Kochar), senior manager, marketing, BAL, said “So while
Bajaj built a trusted and reliable image for itself, it eventually created a perception of being conservative and
middle-aged, not youthful.”
[51]
Therefore, the new launches were complemented with a new communication campaign to inject vibrancy into
the Bajaj brand. BAL came up with a new series of commercials at the end of 2001. The advertisements showed
‘slice of life’ situations of “new age” India. Significantly, instead of geared scooters, the new commercials
mainly showcased motorcycles, as a part of a conscious effort to change BAL’s image as a scooter manufacturer.
“There was a need to drive in motorcycle imagery and get away from the scooter imagery,”
[52]
said Kochar.
However, with the company focusing on motorcycles in its new product initiatives as well as communication
campaigns, customers who still preferred scooters to motorcycles, were forced to look to its competitors for new
and exciting models of scooters.
Trying to Resurrect Scooter Sales
Even as it tried to increase its presence in the growing motorcycle segment, BAL attempted to check the decline
in scooter sales. One of the reasons for the growing preference for motorcycles over scooters was that the price
differential between scooters and motorcycles had narrowed. “What happened in our traditional markets was that
with rising scooter prices, people preferred to buy motorcycles,”
[53]
said R.L. Ravichandran (Ravichandran),
vice-president, business development, BAL. Therefore, in 2001, BAL lowered the prices of the Chetak and the
Super by Rs. 5,000 to Rs.8,000, and at the same time, removed some accessories like spare wheel, luggage box,
etc., from the base models. The price of the base model of the Chetak was reduced from Rs. 28,500 to around Rs.
23,500 (ex-showroom)
[54]
.
While geared scooter sales were falling, the gearless scooter segment had been growing at 25% per annum in the
late 1990s. Gearless scooters were seen as combining the style of a motorcycle with the versatility of a regular
scooter. The purchasers of gearless scooters were mainly teenagers, women, and older people. In 1999-2000,
BAL had a market share of 20% in this segment.
[55]
In order to capture a larger share of the gearless scooter
market, BAL introduced a new gearless scooter with a four-stroke engine in 2000. The Saffire, as it was called,
was jointly developed with Tokyo R&D, a Japanese design firm. During this period, BAL also launched the
Sunny Spice, an upgraded version of the Sunny.
Since customers were also buying motorcycles because of their better mileage, BAL worked to improve the
mileage of its scooters. In 2002, the Legend NXT 2, a four-stroke geared scooter that was claimed to offer a
motorcycle-like mileage of 60-70 kmpl was launched. However, customer response to the new scooter was tepid.
Among BAL’s scooters, the Chetak continued to be the largest selling model. A sales manager at one of the
Bajaj showrooms pointed out, “…the Chetak models are still preferred by the lower middle class due to low
price and (low) maintenance cost.”
[56]
To add to BAL’s problems, HMSI’s Activa (102 cc), a four-stroke gearless scooter, which was launched in 2001,
became a major hit. HMSI sold about 10,100
[57]
units of the Activa within just three months of its launch. The
Category FY 2001 FY 2000 Growth (%)
Geared Scooters 426,334 757,714 -43.7
Un-geared Scooters 78,892 69,726 13.1
Mopeds/Stepthroughs 121,238 176,961 -31.5
Motorcycles 427,088 254,847 67.6
Total two-wheelers 1,053,552 1,259,248 -16.3
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Activa went on to dominate the gearless scooter market.
Anang Dev Jena, business head, Synovate India
[58]
, later commented, “The geared scooters have been available
in similar styling for years, but there was no excitement around scooters till the gearless Honda Activa came to
the market with all-new modern styling.”
[59]
Kinetic launched the Nova, another gearless scooter, in 2002,
which also became quite popular (Refer Exhibit VII for the scooter models in the Indian market).
In April 2003, TVS launched the Scooty Pep (with a 75cc, four-stroke engine), an upgraded version of its Scooty,
with better styling, technology, and storage capacity. It was an instant success. Within a year of its launch,
189,261 units of the Scooty Pep were sold.
[60]
Although its thrust was now on motorcycles, BAL planned to revive scooter sales by introducing more stylish
products. “We are currently developing new scooter models to be launched over the coming one to two years
(2004 and 2005). These products will have entirely new features, styling, and identity as compared to the
existing products available in India. We hope to revive interest in the scooters market in India with these
innovative new products,”
[61]
said Sanjiv.
In 2004, the Chetak was upgraded with a new four-stroke, 125 cc engine, with a promise of greater comfort,
superior performance, and better mileage (70 kmpl). It also incorporated minor style changes. Further, it was
repositioned as an easy-gear scooter targeting customers in smaller towns – markets where scooters were
traditionally accepted. “We introduced a new gear system in the Chetak last month called the ‘wondergear’, in
which no gear shifting is required. Cosmetic/styling changes have also been made in the headlamp, seat, and the
tail lamp,”
[62]
said Ravichandran.
New ad campaigns were also launched to brush up the Chetak’s image. The new ads moved away from the
family man imagery; instead they focused on individuality and strength of character. “If you put it in Hindu
terms, the Chetak is the Ram
[63]
persona…one who believes and lives by certain values,”
[64]
said Aniruddha
Banerjee, associate vice president of Chaitra Leo Burnett (CLB), the ad agency that created the new Bajaj
Chetak ads. However, in spite of BAL’s efforts, Chetak sales did not show any substantial increase.
While BAL’s motorcycles were becoming more popular, the competition in the scooter market continued to be
intense, and its scooters lagged behind in sales. Therefore, BAL was forced to phase out several models
including the Spirit, the Sunny Spice, the Legend NXT 2, and the Bravo. The Saffire, reportedly, suffered from
several technical problems. Its sales too failed to pick up. It was replaced by the Wave in 2005.
THE FALL OF AN ICON
In January 2006, BAL announced that it had stopped production of the Chetak. With this announcement, BAL
closed a major chapter in its history. Rajiv said, “It is a history I would like to forget. My company has lived too
long on nostalgia…holding on to anything from the past is a sign of weakness.”
[65]
According to company
sources, the decision to phase out the Chetak was taken so that the company could upgrade its scooter portfolio
and regain the title of India’s largest scooter manufacturer.
Some analysts were of the opinion that the Chetak, the flagship scooter model of BAL for over two decades, had
to be phased out because BAL had neglected it in terms of design, technology, and innovation. The fact that
BAL had been the undisputed leader in the Indian two-wheeler market could have led to a sense of complacency
at the company, they said. Though initially (i.e., in the 1970s and 1980s), reliable and low-maintenance vehicles
like the Chetak were in demand, BAL failed to keep up with changing customer needs like better fuel economy,
style, comfort, etc. “The consumer has given up on the product. Except minor tinkering, it (Chetak) had
remained unchanged for more than 30 years. But then, that is what consumers wanted, a strong, reliable vehicle
for the family. They used to call it the car on two wheels,”
[66]
said Rajiv.
With the phasing out of the Chetak, BAL had just one scooter model, the Wave
[67]
, while at the same time it had
several successful models in the motorcycle segment. This was in sharp contrast to the situation in the 1980s,
when BAL was the undisputed ‘scooter king’. By 2005-06, HMSI, with three scooter models, was the leader in
the scooter segment and had captured close to 50% market share.
OUTLOOK
The late 1990s saw the popularity of scooters wane and motorcycles emerge as the new favorites in the Indian
two-wheeler market. It was believed that the dramatic shift happened because players like BAL did not pay
sufficient attention to design, R&D, and customer satisfaction. “The decline of the market for scooters was
directly related to neglect of this segment over decades vis-à-vis critical benefits (mileage), contemporary
technology, and non-stop excitement of launch of newer and newer models offered on the motorcycles
platform,”
[68]
said Francis Xavier, managing director, Francis Kanoi Marketing Planning Services
[69]
. BAL,
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however, shifted focus to motorcycles and was proving to be a tough competitor to Hero Honda. As of mid-
2006, BAL’s entry level motorcycles as well as premium motorcycles were doing well in the market.
Even though geared scooters had fallen out of favor, the demand for gearless scooters was set to rise. The sales
of gearless scooters were increasing by 20% every year on an average since 2003 as a result of the introduction
of new models with better technology and trendy styling.
In January 2006, Hero Honda launched the Pleasure, a gearless scooter, mainly targeted at women. The
company planned to sell the Pleasure through “Just4her” – a chain of exclusive showrooms for women.
[70]
It
aimed to capture 10% of the scooter market within a year.
In March 2006, Chongqing Lifan, one of China’s largest two-wheeler manufacturers, announced its plans to set
up a factory in India to manufacture a range of scooters and motorcycles for the Indian market. Earlier, the
company, along with some other Chinese players, had attempted to sell imported (from China) motorcycles
[71]
in India. However, at that time Indian consumers had not proved very receptive to the products.
In April 2006, Kinetic launched the Blaze, a 165cc gearless scooter, which was to be the first of seven models
[72]
from the Italjet range
[73]
. Kinetic planned to launch the remaining six models in a phased manner. Also, in
early 2006, Kinetic entered into a joint venture with Sanyang Industry Co. Ltd., a Taiwanese two-wheeler
manufacturer, to produce a range of scooter models. The first model from this range was expected to roll out in
March 2007. “The automatic (gearless) scooter market is witnessing rapid growth and we will have products in
every segment from the mass, to the convenience driven to the premium end,”
[74]
said Sulajja Firodia Motwani,
joint managing director of Kinetic. Yamaha was also planning to launch a gearless scooter in 2007.
Responding to the growing demand for gearless scooters, BAL unveiled two new gearless scooter models at the
Auto Expo held at New Delhi in January 2006. While the Kristal DTS-I, a sub-100cc model, was to target
teenage girls, the Blade DTS-I, a 150 cc model with 12-inch alloy wheels and disc brakes was to target young
males (Refer Exhibit VIII for photographs of the new models). The new scooter models were to be launched in
late 2006. Meanwhile, BAL’s market share in the scooter market had dipped to an all-time low (Refer Exhibit IX
for market shares in the scooter segment between April and August 2006).
In June 2006, BAL announced its plans to raise production capacity from 3.5 million units to 5.1 million units a
year by 2009, of which the capacity for two-wheelers was to be 4.6 million units.
[75]
According to sources, the
company’s main focus would continue to be the motorcycles segment. BAL planned to launch a new motorcycle
model, the Sonic, in 2006-07. It also had plans to launch a 220 cc variant of its popular Pulsar motorcycle. The
company planned to invest heavily (around Rs. 15 billion) in infrastructure, research and development, etc.
[76]
(Refer Exhibit X for the financials of BAL). Besides, BAL intended to improve its presence in foreign markets
like Latin America, South-east Asia, Africa, China, and the Middle East.
Though the motorcycle had become the favorite two-wheeler of the Indian customer, most analysts did not
expect the demand for scooters to disappear. The scooter market, according to them, was not dead; it was merely
going through a transformation. The geared scooter was giving way to the gearless scooter. It was argued that a
section of the population, especially the women and the elderly, would opt for gearless scooters, due to their
convenience. Moreover, with the launch of sporty gearless scooter models, even young men might be tempted to
shift loyalties. Also, as of mid-2006, rising fuel prices made even the most fuel-efficient motorcycles expensive
to run. With newspaper reports suggesting that Kinetic, TVS, and some other players were toying with the idea
of launching electric scooters and scooters which would run on alternate fuels like CNG, LPG, etc., it appeared
as if the scooter vs. motorcycle competition was far from over.
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Exhibit I
Bajaj Group of Companies *
* excluding BAL.
** The list is not exhaustive.
Source: www.bajajauto.com.
Exhibit II
A Photograph of the Bajaj Chetak
Company** Business
Mukand Ltd. Manufacturer of stainless, alloy, and special steels (carbon and alloy
steels), specialist in highway construction and international trading,
real estate development, bulk material handling equipment (cranes),
etc.
Bajaj Electricals Ltd. Manufacturer of electric fans, highmasts, lattice closed towers and
poles, etc., and marketer of electrical goods such as general lighting
service lamps, special lamps, compact fluorescent lamps, fluorescent
tubes, luminaries, etc.
Bajaj Hindusthan Ltd. Manufacturer of white crystal sugar and industrial alcohol.
Bajaj Auto Finance Ltd. Provides financial services including hire purchase financing &
leasing.
Hind Lamps Ltd. Manufacturer of fluorescent, miniature lamps and glass shells, lead
glass, etc.
Bajaj International Pvt. Ltd. Exporters of electrical fans, GLS lamps, fluorescent tubes, lighting
fittings, luminaries, household appliances, and hoists.
Hercules Hoists Ltd. Manufacturer of ‘INDEF’ brand materials handling equipment such
as triple spur gear chain pulley blocks, chain electric hoists, wire
rope, electric hoists, traveling trolleys, EOT/HOT/stores stacker
cranes, roll-out racks.
Mukand International Ltd. Trading in metals, steels, and Ferro alloys.
Mukand Engineers Ltd. Construction, fabrication, and erection of industrial and
infrastructural projects and InfoTech business.
Mukand Global Finance Ltd. Provides financial services in loans and investments, consumer
finance, corporate finance, etc.
Bajaj Consumer Care Ltd. Manufacturer and trader of ayurvedic medicines, hair oil, tooth
powder, shampoos, etc.
Jamnalal Sons Pvt Ltd. Investment and finance company
Bachhraj & Co. Pvt Ltd. Investment company
The Hindustan Housing
Company Ltd.
Services company
Bombay Forging Ltd. Manufacturer of carbon, alloy and stainless steel closed die forgings
for automobile and general engineering applications.
Bajaj Allianz Life Insurance Co.
Ltd.
Life insurance
Bajaj Allianz General Insurance
Co. Ltd.
General insurance
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Source: www.premjis.com
Exhibit III
New Bajaj Logo (Released in 2004)
Source: www.bajajauto.com
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Exhibit IV
A List of Two-Wheeler Manufacturers in India (1955-1980)
Source: Sunila George, Raghbendra Jha, Hari K. Nagarajan, “The evolution and structure of the two
wheeler industry in India,” http://eprints.anu.edu.au.
Exhibit V
Trends in Market Shares in the Indian Two-Wheeler Segment
(1996-2005)
Source: www.fadaweb.com.
Period of
entry
Name of the Indian firm Name of foreign
collaborator
(if any)
Segment Brand name of
the product
1955-1969 Enfield India Limited Enfield Ltd., UK Motorcycle Royal Enfield
Automobile Products of
India
Innocenti Ltd., Italy Scooter Lambretta
Escorts Ltd. CEKOP, Poland Motorcycle Rajdoot
Ideal Jawa Pvt. Ltd. Jawa Ltd.,
Czechoslovakia
Motorcycle Yezdi
1970-1980 Kinetic Engineering Ltd. – Moped Luna
Scooters India Ltd. – Scooter Vijai Super
Majestic Auto Ltd. – Moped Hero Majestic
Maharashtra Scooters Ltd. – Scooter Priya
Sundaram Clayton Ltd. – Moped TVS 50
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
scooters motorbikes mopeds
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Exhibit VI
Emission Norms in India
Compiled from various sources.
A vehicle’s exhaust is made up of different constituents like carbon monoxide, hydrocarbons, sulphur dioxide and
nitrogen oxides. The emission norms specify the maximum permissible level for these constituents.
In India, the first vehicle emission norms came into force in 1991 for petrol vehicles and in 1992 for diesel vehicles.
In the mid-1990s, the acceptable limits of carbon monoxide, hydrocarbons, and nitrogen oxides emissions were
gradually lowered.
In 1995, unleaded petrol was introduced in four metropolitan cities of India. By 2000, the use of leaded petrol had
been completely phased out in the country.
In 2000, the GoI introduced new emission norms for both petrol and diesel vehicles. The norms introduced in India
in 2000 were equivalent to Euro I norms. In 2001, Bharat Stage II emission norms (equivalent to Euro II) for
automobiles were introduced in all four metropolitan cities in India.
In October 2003, the GoI approved an auto fuel policy that laid out a roadmap for implementing the Indian
equivalent of Euro-II, III, and IV vehicular emission standards by 2010.
According to the policy, Bharat Stage-II norms were made applicable for two- and three-wheelers from April 1,
2005, and Bharat Stage-III (equivalent to Euro-III norms) would come into force preferably from April 1, 2008, but
not later than April 1, 2010 (Refer to table for permissible limits of emissions for two-wheelers, both two stroke and
four stroke).
Source: SIAM report on vehicle emission standards in India, www.cleanairnet.org.
Two-wheelers in India constitute 76% of the total of 40 million vehicles on the road. Therefore, the emission norms
for two-wheelers in India are one of the most stringent in the world.
Year Emission Constituents (gram/kilometer)
1991 1996 2000 2005
Carbon monoxide 12 4.5 2.0 1.5
Hydrocarbons + Oxides of Nitrogen 8 3.6 2.0 1.5
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Exhibit VII
Scooter Models in the Indian Market
# mileage as per auto reviews.
* ex-showroom Pune (in 2006).
^ ex-showroom Bangalore (in 2001).
@ ex-showroom Chennai (in 2005).
Compiled from various sources.
Company Model Particulars
Price* Weight Mileage
(Kmpl)#
Positioning
Bajaj Wave (110cc) 32,500 110 45 Styling and convenience – for
females
Kinetic Zoom (110cc)
Two-stroke
38,100^ 100 45 Durable and powerful
Kinetic 4S
(113.5cc)
39,100@ 104 50 Reliability and convenience
Zing 80 (72cc) 25,900 82 Coolness
Kine (72cc) 26,650 82 50 Combination of style,
convenience and performance
Nova (135cc) 36,793 103 55 Advanced technology
Blaze (165cc) 49,900 136 Power and styling
Honda Activa (102cc) 37,800 111 45 Designed for everyone
Dio (102cc) 38,700 104 45 Styling
Eterno (150cc) 34,300 139 55 Value for money
TVS Scooty Pep+
(88cc)
32,000 95 50 Styling – for female teenagers
Hero Honda Pleasure (102cc) 36,500 104 50 For females
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Exhibit VIII
Bajaj’s New Scooter Models
Exhibit IX
Scooter Market Shares in April-August 2006
Source: Nirbhay Kumar, “Bajaj to re-launch ungeared scooters,” Corporates & Markets, Financial
Express, September 15, 2006.
A. Blade
Source: www.indiabike.com.
B. Kristal
Source: www.blonnet.com.
TVS
33%
HMSI
50%
Bajaj
2%
Kinetic
Hero 5%
Honda
10%
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Exhibit X
Bajaj Auto Financials
Source: www.bajajauto.com.
END OF QUESTION PAPER
2005-2006
(Rs. in million)
2004-2005
(Rs. in million)
Net sales & other income 81,064 63,228
Gross profit before VRS compensation, interest &
depreciation
17,946 13,215
VRS compensation 226 490
Interest 3 7
Depreciation 1,910 1,854
Profit before taxation 15,807 10,864
Provision for taxation 4,791 3,196
Profit after tax 11,016 7,668
Tax credits pertaining to earlier years 225 –
Prior period adjustment (8) (18)
11,233 7,650
Adjustment on account of write-down of deferred
tax assets
– (358)
Disposable surplus 11,233 7,292
Proposed dividend (inclusive of dividend tax) 4,615 2,884
Balance carried to general reserve 6,618 4,408
Earnings per share (Rs.) 111.0 75.6
Suggested Answers
Integrated Case Studies – I (MB371) : October 2007
Case Study
1. The Chetak was one of the first offerings in its category from an Indian manufacturer launched in 1972 and
that reigned over the Indian two-wheeler market in the late 1970s to early 1990s. Several factors
contributed to the near iconic status of the Bajaj/Chetak brand:
Chetak stood for loyalty, dependability and durability: 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.
In the 1970s and 1980s, scooters dominated the Indian two-wheeler market. Most middle-class Indians
preferred scooters because of their durability.
Affordable and ideal product: 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.
Simple technology and low maintenance: 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.
Advertisements: 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.
Low cost manufacturer: BAL gained cost competitiveness by its low cost manufacturing. Over the years,
BAL became one of the lowest-cost manufacturers of scooters not only in India, but also globally. The
Bajaj Chetak and Bajaj Super are low price vehicles affordable to low and middle class Indians. Even
though they are not stylish people accepted them because of their low prices, low maintenance cost and
sturdiness. Over the years, BAL became one of the lowest-cost manufacturers of scooters not only in India,
but also globally
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Better personal transportation: During the 1970s, two-wheeler sales recorded high growth rates (around
15% p.a). This growth was partly attributed to the inefficient public transport systems in the country’s
towns and cities, which led to a greater demand for personal transport. With only a small section of the
population able to afford cars (the supply of which, as well as the choices available, was also limited due to
the License Raj), two-wheelers offered the only practical personal transport option for the masses. BAL
took this opportunity and introduced its Bajaj Chetak, which is sold out like hot cake.
Versatility: The Bajaj Chetak, with their versatility, were the preferred two-wheelers for middle class
Indians.
Fuel efficiency: With fuel costs rising steeply during the period, even the people who owned cars
purchased two-wheelers, which they usually used for short trips and errands. By taking this opportunity
BAL launched its two new scooter models (the Chetak and the Super) and conquered the two wheeler
market.
Value for money appeal: They were also cheaper to own and maintain, hence provide value for money.
Seller’s market: During this period, the two-wheeler market, like the markets for most other consumer
goods in India then, was completely a seller’s market. The demand for two-wheelers far outstripped supply,
a situation which persisted until the mid-1980s. At the peak of its popularity, the waiting period for the
Bajaj Chetak was anywhere between 10 and 12 years. As Rahul reminisced, “In North India, for two or
three decades, marriages did not happen without a Chetak. It was a compulsory dowry item.”
Lighter weight vehicle: In 1970’s and 1980’s the motorcycles available in India were heavier and not as
fuel efficient as scooters. They were also costlier. As a result scooters dominated the Indian two-wheeler
market. Bajaj chetak became popular because of its durability, versatility and low maintenance costs.
Monopoly/Non-availability of alternative choices: However, one can 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.
< TOP >
2. BAL was unprepared for the changing environment as it had hitherto been a near monopoly. Its
unpreparedness was evident in the following aspects:
With respect to consumer satisfaction
• Failure to read market trends: 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 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.
• Shift in consumer preferences: With consumer preference changing from scooters to more stylish
looking motorcycles BAL was unable to hold onto the number one position and had to relinquish it to
Hero Honda.
• Motorcycles taking over: Motorcycles, with their improved styling and power attracted young men
more than the staid products sold by BAL and other scooter manufacturers. Motercycles are more fuel
efficient compared to scooters.
• Increase in middle class income: In 1990’s, the Indian economy was beginning to grow rapidly. This
growth was palpable even in small towns and rural areas where a number of households saw their
incomes rise, opening up a new market for two-wheelers. In these regions, motorcycles were preferred
to scooters because of poor road conditions. Hence there is a down trend for scooter market as well as
Bajaj Chetak.
• Shift from scooters to motorbikes: 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.
With respect to technological innovation
• Lack of modern technology: Even though the GoI’s thrust on setting up manufacturing units in India
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paved the way for the initial development of the auto industry, the “closed market” resulted in a lack of
technological innovation. The GoI encouraged local companies to enter into collaborations with foreign
firms so that they could gain technological expertise and encouraging technology upgradation.
Although, Indian two-wheeler firms had entered into technical collaborations in the 1960s, the foreign
firms were not always very keen on parting with their latest technologies/designs. Since Indian firms
invested next to nothing on R&D, they were entirely dependent on their foreign partners for technology.
• Complacency in terms of technology: Because 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. Product design plays an important role in
satisfying the customer. According to changing customer preferences organizations need to bring in
changes to the product design. BAL failed to acknowledge this aspect.
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.
With respect to growing competition
Due to the liberalization of the government policy the foreign and Indian MNCs entered the two-wheeler
market which resulted in increased competition for BAL, which the company was unprepared to meet.
Competitors gained over BAL in the following ways:
• The foreign automobile manufacturers too were eager to grab the opportunity of exploiting an
underserved market
• The foreign firms came with the latest technology and efficient production systems, which dramatically
improved the quality of the motorcycles available in the market (fuel efficiency, style, performance,
mileage)
• Introduction of low cost motorcycles (compared to old motorcycles)
• The price differential between scooters and motorcycles had narrowed
• Customers, who still preferred scooters to motorcycles, were forced to look to competitors for new and
exciting models of scooters.
With respect to policy changes by GOI
• The GoI made several policy changes in the 1970s and early 1980s to give an impetus to the auto
industry. In 1980, the focus was on modernization, encouraging technology upgradation and promoting
healthy competition in the domestic market. As part of these policy initiatives, the GoI allowed foreign
auto companies, mostly from Japan, to enter the Indian market through joint ventures with Indian
companies.
• New set of emission norms: The new set of emission norms – Bharat Stage II (equivalent to Euro II
emission norms) – for petrol two-stroke engines came into effect in 2000. With this development,
scooters with two-stroke engines fell out of favor. This was a blow to BAL, which primarily sold twowheelers
with two-stroke engines.
< TOP >
3. a. Every product has a life cycle consisting of four stages - Introduction, Growth, Maturity and Decline
Chetak’s life cycle can be broadly explained as follows:
Introduction
In 1972 Chetak was introduced in the Indian scooter market. Chetak was one of the first offerings in
its category from an Indian manufacturer and was the flagship scooter model of the company. For
Chetak this stage was marked by lack of competition.
Growth
During the 1970s and 1980s’ Chetak scooters dominated the Indian two-wheeler market. Most
middle-class Indians preferred scooters because of their durability, low maintenance costs, and
versatility, and the Bajaj Chetak name became synonymous with scooters. At that time, the
motorcycles available in India were heavier and not as fuel efficient as scooters. They were also
costlier. BAL became one of the lowest-cost manufacturers of scooters not only in India, but also
globally. All these factors attributed to Chetak’s popularity and dominance and growth in the scooters
segment.
Maturity
In the late 1980s’ although BAL entered the motorcycles segment, Chetak continued to be the leader
in the scooters market.
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The early 1990s saw a recession in the Indian two-wheeler market. Overall sales of two-wheelers
declined by 15% in 1991 and 8% in 1992. This period also saw a steep rise in fuel prices, which
resulted in consumers placing greater emphasis on fuel efficiency when purchasing a new two
wheeler. Also consumer preferences were shifting towards motorcycles.
Scooters were BAL’s main products, and when market preferences shifted to motorcycles, the
company was faced with declining sales and revenues, which was also applicable to Chetak. To keep
up with the changing market, BAL started upgrading technology and launched more stylish models of
Chetak.
Decline
Due to the technological advances, increase in competition and shift in consumer’s tastes and
preferences, in the late 1990s, the pattern of demand changed and motorcycles became the fastest
growing segment of the two-wheeler market.
While these changes were taking place in the market, the features of scooters, especially those of the
Bajaj Chetak, remained essentially unchanged. Consequently, Chetak which had for the past 30 years
remained unchanged totally lost out.
Chetak, the flagship scooter model of BAL for over two decades, had to be phased out because BAL
had neglected it in terms of design, technology, and innovation. In January 2006, BAL announced that
it had stopped production of the Chetak. With this announcement, BAL closed a major chapter in its
history.
b. With the end of Chetak nearing, BAL knew that the demand for geared scooters was disappearing.
Following are the various strategies adopted by BAL to extend the life of its scooters:
Product augmentation : The Chetak was upgraded with a new four-stock, 125 cc engine, with a
promise of greater comfort and superior performance.
Pricing : One of the reasons for the growing preferences for motorcycles over scooters was that price
differential between scooters and motorcycles has narrowed. Hence as a strategic move BAL lowered
the prices of the Chetak and the Super.
Product reposition : Minor style changes were incorporated in Bajaj Chetak, and it was repositioned
as an easy-gear scooter targeting customers in small towns – markets where scooters were
traditionally accepted.
Image makeover : New ad campaigns were also launched to brush up the Chetak’s image. The new
ads moved away from the family man imagery; instead they focused on individuality and strength of
character
< TOP >
4. The new launches helped the BAL to refresh its image while also offering a wider range of two-wheelers to
its customers.
Towards late 1990s the overwhelming image of a scooter company that had once been nurtured through the
“Hamara Bajaj” ad campaign, seemed to be working against the company. BAL created a perception of
being conservative and middle-aged, not youthful. The advertisements, which prominently featured the
Chetak, were successful in positioning the Bajaj brand as a reliable and trustworthy one. The efforts made
by BAL to change the above image were:
• The new ads moved away from the family man imagery; instead they focused on individuality and
strength of character.
• Instead of geared scooters, the new commercials mainly showcased motorcycles, as a part of a
conscious effort to change BAL’s image as a scooter manufacturer.
• They changed the looks of the bikes to make them more stylish.
• The new launches were complemented with a new communication campaign to inject vibrancy into the
Bajaj brand.
• BAL came up with a new series of commercials at the end of 2001. The advertisements showed ‘slice
of life’ situations of “new age” India.
• BAL already having been a leader in scooter market launched gearless scooters with four-stroke engine
catering to the needs of teenagers, women and elderly people, jointly developed by Tokyo R&D, a
Japanese design firm.
• Launching the first motor cycle model in collaboration with Kawasaki.
• The new launches helped the company offer a wider range of two-wheelers to its customers, they also
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helped it to refresh its image. Ex: Pulsar (Premium), Elimiator (Cruiser)
• BAL created a new logo and brand line in a bid to renew its brand identity. The new logo was designed
to symbolize confidence and excitement.
• Introducing DTSi technology in its motorcycle models.
< TOP >
5. A product portfolio is the set of different products that an organization produces, ideally balanced so that
some products are mature, some are still in their growth stage while others are waiting to be introduced.
The best product portfolio is one that fits the company’s strengths and helps exploit the most attractive
opportunities. The company must develop growth strategies for adding new products and businesses to the
portfolio, whilst at the same time deciding when products should no longer be retained. In this light, BAL’s
product portfolio can be assessed as follows:
Scooters
• BAL initially manufactured the Vespa brand of scooters under a technical collaboration with Piaggio.
In 1971, the agreement with Piaggio ended and the company began selling scooters under the Bajaj
brand.
• In 1972, the Bajaj Chetak, a geared scooter with a two-stroke engine, was introduced. Bajaj Chetak is
the successful model of Bajaj Auto Limited. Bajaj Chetak occupied near iconic status during 1970s and
1980s. The market was targeted at middle class Indians. In 1975, BAL entered into a joint venture with
Western Maharashtra Development Corporation (WMDC). BAL marketed the two-wheelers
manufactured by MSL under the Priya brand. This JV was the result of the technology transfer policy of
the GoI. To expand its portfolio of scooters BAL introduced the Bajaj Super, another geared scooter, in
1976. Bajaj Super targeted the middle class segment. Bajaj Super acquired a good market share. In
1994 Bajaj Classic was introduced in geared scooter market. However, the Bajaj Classic did not gain
popularity. Chetak and Super were the only scooter brands that brought immense success to BAL.
• BAL also launched the first four stroke scooter Legend and a gearless scooterette, the Spirit. In 2002,
the Legend NXT 2, a four-stroke geared scooter that was projected to offer a motorcycle-like mileage of
60-70 kmpl was launched. HMSI’s Activa (102 cc), a four-stroke gearless scooter, became a major
competition to Legend and customer response to the new Legend was very poor.
• In 1999, the company launched the Bravo, a geared scooter, which did not do well. During 2002 and
2005 BAL introduced several models of gearless scooters, the Spirit, the Sunny Spice, the Bravo, the
Saffire, and the Wave, which failed in the gearless scooter market.
• In 2004, the upgraded version of Chetak with a new four-stroke, 125 cc engine, was introduced
targeting customers in smaller towns. Because of the severe competition from Hero Honda and Kinetic
Honda the upgraded version of Chetak did not succeed in the two wheeler market.
Looking at the dismal performances of the geared scooters due to changing the market, all of the scooter
models were taken off the market. The only models which remain as of 2006 are Bajaj Wave, Kristal and
Blade.
• To deal with changing environmental trends BAL launched gearless scooters/ scooterette - Bajaj
Sunny. Sunny did well in the market but again was a single scooterette brand on BAL’s portfolio.
Sunny an upgraded version of Sunny spice was also introduced during this period, targeting the market
segment of teenagers, women and older people. BAL had acquired a market share of 20% in this
segment.
Motorcycles
• To include motorcycles in its two-wheeler portfolio BAL introduced Kawasaki-Bajaj KB100 in 1986,
which did relatively well in the market. In the same year BAL also entered the moped segment with its
model Bajaj M80.
• Subsequently when BAL lost out in the scooters market, which were its only presence in the twowheeler
market, the company came out with several other motorcycle brands. Models such as the Bajaj
Boxer and Bajaj Caliber were introduced in the market, which were successful.
• In the early 2000s, with new motorcycle launches in every segment, covering each price point, BAL’s
product portfolio changed dramatically. While improved versions of the Boxer and the Caliber
motorcycles were launched in the executive segment, the Pulsar (175 cc) was launched in the premium
segment
• In 2001, BAL introduced the Pulsar (in 150 cc and 180 cc engine capacities). Motorcycles were priced
higher than the existing models. Pulsar got a good response in the market.
• The Eliminator (175 cc engine capacity) was also launched but it did not do as well as expected.
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• Two motorcycles, the Avenger and the Discover, were introduced in 2005, which are doing relatively
well.
• In early 2006, BAL launched the Platina, a 100cc motorcycle. This got good response from the market.
With a wide ranging portfolio of motorcycles, and BAL shifting focus to motorcycles proved to be a tough
competitor to Hero Honda. As of mid-2006, BAL’s entry level motorcycles as well as premium
motorcycles were doing well in the market.
< TOP >
6. 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.
Economic Changes
Increase in disposable incomes: 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.
Entry of MNCs: 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.
Price: One of reasons for growing preference for motorcycles over scooters was that the price differential
between scooters and motorcycles had narrowed.
A steep rise in fuel prices resulted in consumers placing greater emphasis on fuel efficiency when
purchasing a new product.
Increase in finance options: Liberalization also led to an increase in customer finance options, which were
almost absent in the 1980s or earlier.
Social and Cultural changes
Changing attitudes: 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.
Changed preferences: 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 aspirations: 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.
< TOP >
7. a. Outlook for BAL
• BAL’s entry level motorcycles as well as premium motorcycles were doing well in the market.
• Even though geared scooters had fallen out of favor, the demand for gearless scooters was set to
rise. The sales of gearless scooters were increasing by 20% every year on an average since 2003 as
a result of the introduction of new models with better technology and trendy styling. This augurs
well for BAL.
• Responding to the growing demand for gearless scooters, BAL unveiled two new gearless scooter
models at the Auto Expo held at New Delhi in January 2006. With 12-inch alloy wheels and disc
brakes was to target young males.
• In June 2006, BAL announced its plans to raise production capacity from 3.5 million units to 5.1
million units a year by 2009, of which the capacity for two-wheelers was to be 4.6 million units.
• According to sources, the company’s main focus would continue to be the motorcycles segment.
• BAL planned to launch a new motorcycle model, the Sonic, in 2006-07. It also had plans to
launch a 220 cc variant of its popular Pulsar motorcycle.
• The company planned to invest heavily (around Rs. 15 billion) in infrastructure, research and
development, etc.
• BAL intended to improve its presence in foreign markets like Latin America, South-east Asia,
Africa, China, and the Middle East.
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[1]
“Bajaj slams brakes on Chetak,” www.indiacar.com, January 03, 2006.
[2]
“Hero Honda launches ‘Just4her’,” www.herohonda.com, January 20, 2006.
[3]
Brian Carvalho and Swati Prasad, “Bike Wars,” www.india-today, September 16, 2001.
[4]
Geared scooters are scooters with manual gear shifts.
[5]
Piaggio, the Italian two-wheeler manufacturer, was founded by Rinaldo Piaggio in 1884. It started its business by producing rail
carriages, goods vans, luxury coaches, engines, etc. In 1917, it started producing aeroplanes. The company was believed to
have pioneered the category of scooters, which were sold under the Vespa brand, in 1946.
[6]
Hero Honda is the joint venture between Honda Motor Co. Ltd. and Hero Cycles Ltd. It was established in 1984. In 2002, with
its motorcycle sales touching 1.4 million units, it became the world’s largest two-wheeler manufacturer.
[7]
Honda Motorcycle and Scooter India Pvt. Ltd. was incorporated in 1999 as a fully-owned subsidiary of Honda Motor Co. Ltd.,
the auto major of Japan.
[8]
Gearless/ungeared scooters are scooters with automatic gear transmission. They usually come with convenient features like
self-start, auto choke, etc.
[9]
Kinetic Motor Company Ltd. is part of Kinetic Engineering Ltd. (KEL), the flagship company of the Kinetic Group. KEL was
incorporated in 1970 to manufacture two-wheelers. In 1972, the company launched its first moped, Kinetic Luna.
[10]
According to folklore, Chetak, the horse of Maharana Pratap Singh (a Rajput ruler), saved his master’s life in the battle of
Haldighati. The battle of Haldighati was fought in 1576 between Maharana Pratap Singh and Man Singh, a general in the army of
Akbar, the Moghul emperor.
[11]
The Maharashtra Industrial Development Corporation was set up in 1962, under the Maharashtra Industrial Act. (Source:
www.midcindia.org.)
[12]
Bajaj Auto Ltd., http://auto.indiamart.com.
[13]
To achieve technological self-reliance, the GoI gave importance to technology transfer between organizations. The GoI’s
technology transfer policy spelt out ways in which the diffusion of technology could be brought about. This policy included
• It was argued that a section of the population, especially the women and the elderly, would opt for
gearless scooters, due to their convenience.
• Moreover, with the launch of sporty gearless scooter models, even young men might be tempted
to shift loyalties.
• Keeping in view, the changing economic condition of the people, BAL can think of foraying into
passenger car making.
• In the light of the above BAL is set to regain it’s lost position.
b. Outlook for two-wheeler industry in India:
• Growth for gearless scooter
• Market for women and older people
• Idea of launching electric scooters and scooters which would run on alternate fuels like CNG,
LPG, etc.
• Decline for two-wheelers as economic four wheelers coming up
• Rising fuel prices made even the most fuel-efficient motorcycles expensive to run
< TOP >
< TOP OF THE DOCUMENT >
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horizontal technology transfer – technological support for ancillaries from large units; technology inputs to small units; and upgradation
of traditional skills and capabilities. (Source: www.lakshadweep.nic.in)
[14]
Japan-based Kawasaki Heavy Industries was established in 1896. As of 2006, apart from its home country, it was present in
the UK, the US, Canada, the EU, South America, Israel, South Africa, Iran, Indonesia, Jordan, Korea, China, and Australia.
[15]
Cagiva was founded in 1950, by Giovanni Castiglioni, in Varese, Italy as a manufacturer of metallic components for
motorcycles. It started manufacturing whole motorcycles in 1978. The company has a design arm called Centro Ricerche Cagiva,
which is world renowned for its design skills.
[16]
Digital Twin Spark ignition or DTSi is an advanced ignition system. The twin sparks, which are digitally controlled, help in faster
and better combustion of fuel, resulting in higher fuel efficiency.
[17]
Director’s report, www.bajajauto.com.
[18]
During this period, private investment was extensively regulated by the government through licensing. All the important
business decisions like the entry of a firm into an industry, capacity expansion, choice of product, capacity mix and technology
were controlled by the government in an attempt to prevent concentration of economic power. This was referred as License Raj
(rule).
[19]
Lambretta scooters, launched in 1947 in Italy, were originally produced by Innocenti Ltd., an Italian company founded by
Ferdinando Innocenti in 1922.
[20]
Enfield India Limited started its operations in 1955 in collaboration with the British company, Enfield Manufacturing Company
Limited. As of 2006, it is part of the Eicher group of companies.
[21]
Escorts Limited is the flagship company of the Escorts group. The Escorts group was established in 1944 by
H.P Nanda and Yudi Nanda. It started making motorcycles in the 1960s. As of 2006, the Escorts group has diversified
businesses in agri-machinery, telecommunications, healthcare, construction & material handling equipment, automotive & railway
ancillaries, information technology, and financial services.
[22]
Sunila George, Raghbendra Jha, Hari K. Nagarajan, “The evolution and structure of the two wheeler industry in India,”
http://eprints.anu.edu.au.
[23]
Dowry is the payment in cash or/and kind by the bride’s family to the bridegroom’s at the time of marriage. The giving or taking
of dowry is forbidden under Indian law (Dowry Prohibition Act, 1961).
[24]
“Bajaj bids adieu to hamara chetak,” http://bsnl.in, January 04, 2006.
[25]
The Monopolies and Restrictive Trade Practices (MRTP) Act was enacted in 1969. The Act empowered the MRTP
Commission ‘to enquire into monopolistic or restrictive trade practices upon a reference from the Central Government or upon its
own knowledge or on information’. (Source: http://dca.nic.in)
[26]
The Foreign Exchange Regulation Act (FERA) was introduced in 1973. It was framed primarily to regulate dealings in foreign
exchange and foreign securities to conserve the foreign exchange reserves of India. It was replaced by the Foreign Exchange
Management Act (FEMA) in 1999.
[27]
Scooters India Ltd. was incorporated in 1972 in Lucknow. It started manufacturing scooters under the Lambretta brand for
overseas markets in 1975. It sold scooters in the domestic market under the Vijai Super brand. It stopped production of scooters
in 1997. As of 2006, it manufactures three-wheelers under the Vikram brand.
[28]
Kinetic Engineering Ltd. was incorporated in 1970 to manufacture two-wheelers. In 1972, the company launched its first
moped, Kinetic Luna. (Source: www.kinetic2wheelers.com)
[29]
“Two-wheelers: looking back,” www.automonitor.com, in 2005.
[30]
Karvy, established in 1981, is an integrated financial services provider. Its businesses include depositary participants,
distribution of financial products, merchant banking & corporate finance, stock broking, etc.
[31]
Honda launched its first motorcycle, Dream D (2-stroke, 95cc engine), in 1951. As of 2005, its worldwide production of
motorcycles was estimated at 150 million units. (Source: http://world.honda.com)
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[32]
The Japanese auto manufacturer Suzuki was founded in the 1920s as a loom manufacturing company. It started producing
motorcycles in the early 1960s. Suzuki formed a joint venture with TVS in 1982 to produce motorcycles in India. However, the
joint venture ended in 2002. As of 2006, Suzuki operates in India through a wholly-owned subsidiary.
[33]
Yamaha Motor Co. was set up in 1955. Its first motorcycle was the YA-1 (2 stroke, 125cc engine). It entered the Indian market
in the early 1980s by forming a joint venture, Yamaha Motor Escorts Ltd., with Escorts Ltd. In June 2001, Yamaha bought
Escorts’ stake in the JV and renamed it Yamaha Motor India Ltd.
[34]
The Hero group was started as a family business by Munjal brothers (Satyanand, Brijmohan Lall and O.P. Munjal). In 1956,
Hero Cycles Ltd. was set up and it went on to become the world’s largest manufacturer of bicycles. In 1984, it tied up with Honda
to produce motorcycles.
[35]
The TVS group was founded by T.V. Sundaram Iyengar in 1911. The group entered the two-wheeler market in 1980 with the
launch of the TVS 50, India’s first two-seater moped. As of 2006, TVS Motor Co. Ltd. is a major player in the Indian two-wheeler
market with several products like the Scooty, the Victor, etc.
[36]
LML (India) Ltd. was incorporated in Kanpur, Uttar Pradesh, in 1972 as a manufacturer of finished leather and processor of
synthetic yarn. It entered into a joint venture with Piaggio in 1982 to manufacture Vespa brand scooters. The joint venture ended
in 1999. LML later launched several indigenously developed scooter models like the Pulse, the Prithvi, and the Trendy. It also
launched motorcycles like the Energy and the Adreno, under technical collaboration with Korea-based Daelim. As of 2006, the
company was in the red with accumulated losses of over Rs. 2 billion.
[37]
“Historical industry development,” www.indiainfoline.com.
[38]
“Industry watch: two wheelers,” http://iw.sify.com, December 18, 1999.
[39]
TVS Suzuki Ltd. had launched the TVS Scooty, a sub-100cc gearless scooterette, in 1994. The technology in this model was
indigenously developed by TVS Motor.
[40]
“Industry watch: two wheelers,” http://iw.sify.com, December 18, 1999.
[41]
Manoj Kumar & Shveta Pathak, “Youths embrace high-power bikes,” www.tribuneindia.com, April 2002.
[42]
Robin Abreu, “Down to Earth,” www.indiatodaygroup.com, June 26, 2006.
[43]
Manoj Kumar & Shveta Pathak, “Youths embrace high-power bikes,” www.tribuneindia.com, April 2002.
[44]
Gaurav Choudhury, “Innovative scooter models on cards,” www.tribuneindia.com, September 21, 2003.
[45]
“How hamara Bajaj became a sign of independent India,” www.moneycontrol.com, August 1, 2006.
[46]
Two-stroke engines caused more air pollution. They emitted high quantities of hydrocarbons including benzene and other
pollutants along with a large quantity of unburnt fuel.
[47]
Sandeep Unnithan, “The doughty old scooter is overtaken by the motorcycle – despite a spirited fightback,” www.indiatoday.
com, April 2001.
[48]
Neena Haridas, “The two-wheeler market in India is moving towards motorcycles,” www.rediff.com, January, 2000.
[49]
The cruiser segment can be classified as super-premium segment. Cruiser motorcycles are different from the usual
motorcycles in terms of design and are built to enhance comfort for long-distance riders.
[50]
Neena Haridas, “The two-wheeler market in India is moving towards motorcycles,” www.rediff.com, January, 2000.
[51]
N. Shatrujeet, “Lintas renews tryst with Hamaara Bajaj anthem,” www.agencyfaqs.com, September 29, 2001.
[52]
N. Shatrujeet, “Lintas renews tryst with Hamaara Bajaj anthem,” www.agencyfaqs.com, September 29, 2001.
[53]
Sandeep Unnithan, “The doughty old scooter is overtaken by the motorcycle-despite a spirited fight back,” www.indiatoday.
com, April 2001.
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[54]
“Economy models of Bajaj Chetak, Super to be cheaper by Rs. 5,000-8,000,” www.bajajauto.com, December 2000.
[55]
“Madhavan on a roll – The South star to endorse Bajaj Auto’s Saffire,” www.magindia.com, October 19, 2000.
[56]
Manoj Kumar & Shveta Pathak, “Youths embrace high-power bikes,” www.tribuneindia.com, April 2002.
[57]
“Honda Activa cruises as peers decelerate,” www.indiacar.com, 2001.
[58]
Synovate, a market research company, was formed in 2003.
[59]
Neha Kaushik, “The scooter surge,” www.thehindubusinessline.com, August 05, 2004.
[60]
“Preity Zinta to ride TVS Scooty PEP! TVS Scooty scales a new landmark, as it crosses ‘The Million Mark’,” www.tvsmotor.in,
April 05, 2004.
[61]
Gaurav Choudhury, “Innovative scooter models on cards,” www.tribuneindia.com, September 21, 2003.
[62]
Neha Kaushik, “The scooter surge,” www.thehindubusinessline.com, August 05, 2004
[63]
Ram or Rama is a Hindu God.
[64]
N. Shatrujeet, “Bajaj Chetak: Riding on a value system,” www.agencyfaqs.com, 2004.
[65]
“Bajaj slams brakes on Chetak,” www.indiacar.com, January 03, 2006
[66]
“Bajaj slams brakes on Chetak,” www.indiacar.com, January 03, 2006.
[67]
The Wave, launched in 2005, was an upgraded version of Saffire, and came with DTSi technology.
[68]
Neha Kaushik, “The scooter surge,” www.thehindubusinessline.com, August 05, 2004.
[69]
Francis Kanoi Marketing Planning Services, a Chennai-based marketing research company, was founded by Francis Xavier, in
1982.
[70]
The first “Just4her” showroom was inaugurated in Delhi, in January 20, 2006 by Pawan Munjal, the MD of Hero Honda.
[71]
Companies like Jialing and Kinlon attempted to import motorcycles from their factories in China. However, the import duties
(65%) that were levied on these vehicles made them uncompetitive. There were reports that the Chinese motorcycles were not
as refined as the Indian ones in terms of design, ride quality, performance, and other aspects.
[72]
Kinetic acquired the manufacturing and distribution rights (for Indian and export markets) of seven scooter models from Italjet in
2004. Apart from the Blade, the other models were the Euro (originally the Jet-Set), the Jupiter, the Dragster, the Torpedo, the
Formula, and the Velocifero.
[73]
Italjet is a major two-wheeler designing and manufacturing company founded in 1959 by Leopoldo Tartarini.
[74]
“Kinetic, Taiwanese co tie up to manufacture scooters – New roll-out in nine months,” www.thehindubusinessline.com,
February 10, 2006.
[75]
Press release, www.bajajauto.com, March 10, 2006.
[76]
Press release, www.bajajauto.com, March 10, 2006.