Strategy: Does Bajaj Auto Have The Caliber To Be A Legend?

STRATEGY
Does Bajaj Auto Have The Caliber To Be A Legend?

17 new products in 2 years, but the world's fourth-largest two-wheeler manufacturer is still behind.

By Chhaya

Rajiv Bajaj, V-P (Products), Bajaj Auto Sometimes, life imitates advertising. There's this Bajaj Auto tele-spot for its 111-cc, 4-stroke motorcycle, the Bajaj Caliber. You know, the one about the guy driving through the country in search of his lost girlfriend. After a long drive, he finds her--but she's married (read: the customers Bajaj Auto lost to Hero Honda). But then, as the protagonist drives off, dejected, another PYT manifests herself from behind a car. The Rs 7,000-crore question (one the ad fails to answer): will she--the customer--opt for Hamara Bajaj?

Well, Bajaj Auto is driving at top gear searching for an answer. Last year, the scooter-giant launched 4 models and 5 product upgrades. This year, it has lined up at least 4 new products and 4 upgrades. That translates into 17 new products and upgrades in 24 months. Still, Rahul Bajaj, 60, Chairman, Bajaj Auto, is careful: "The effect of this will be seen in 2000-01. While we are rolling out outstanding products, we cannot predict the future. We have to wait and watch."

This change in tenor takes some getting used to, particularly since Bajaj Auto still controls 45 per cent of the Rs 7,000-crore domestic 2-wheelers market. Its sine qua non status bred complacency--even arrogance. No longer. Says Bajaj: "It is true that our competitors attracted more customers than we did." Adds his son, Rajiv Bajaj, 31, Vice-President (Products), Bajaj Auto: "Our decline was because the customer changed, the world changed--and we did not realise this. By the time we did, in 1995, it was too late."

Now, Bajaj Auto is fighting back in its mainstay, the scooters segment, and marking its presence in the scooterettes business too. More significantly, it is revving up in the motorcycles segment despite the fact that, strictly speaking, its technology- partner, Kawasaki Co., is not the best. While its huge scooter volumes continue to provide the bulk of the company's profits, the smaller volume, but higher-margin, motorcycle sector is alluring. Particularly as, in this brave new world, technology and design is not proprietary, and shopping around the world is possible.

However, for the moment, Bajaj Auto is skidding. It has announced poor results in the first 9 months of 1998-99: its net sales slipped by 2 per cent, and its net profits fell by 30 per cent in comparison to the same period of 1997-98. Explains Sangeeta Mehta, 29, Co-Head of Research, Kotak Securities: "It's a reflection of a market where scooter volumes have been subdued. The last 2 months of 1998 have been particularly bad."

True; the Value-For-Money (V-F-M) segment of the scooter business, which Bajaj Auto lords over, is sluggish due to poor industrial growth. According to data for the period April, 1998, to January, 1999, from the All India Automobile Manufacturers' Association, the 2-wheelers market grew by 9.40 per cent when compared to the corresponding period of last year. However, scooter volumes grew by just 3.10 per cent. Even so, Bajaj Auto hasn't been performing as well as its peers. In the first 10 months of 1998, its scooter sales fell by 1.10 per cent; in comparison, LML's sales grew by 5.60 per cent.

In the motorcycles segment, which is zipping along at the rate of 21 per cent per annum, Bajaj Auto's sales grew by 16 per cent--still way behind Hero Honda's sales- growth of 31 per cent. Of course, the company has been hit by a 11 per cent drop in 3-wheeler volumes, but its 2-wheelers, which account for 85 per cent of its sales, provide more cause for worry. Why, Bajaj Auto's sales of scooterettes have crashed by 11.60 per cent in April-January, 1998-99, in comparison to the same period of the previous year.

There are two historical reasons for Bajaj Auto's slump. One, the competition--LML, Hero Honda, and TVS-Suzuki--scores over Bajaj Auto in terms of up-to-date products, both technologically and aesthetically. And second, the character of the market has been changing: consumers prefer motorcycles. And Bajaj Auto did not have any products for this meteoric market except the kb-100 and the 4-s Champion, both from the Kawasaki Bajaj stable. Agrees Rahul Bajaj: "Motorcycles constituted only 15 per cent of our production."

So, Bajaj Auto chose two central points of attack: styling and technology. In fact, the company has spent Rs 69 crore on R&D in the past 3 years. Explains Rajiv Bajaj: "The issue was to find out why the customer is buying, or not buying, a Bajaj Auto vehicle. Dissonance in the expected performance was an issue." Pricing, in general, has not been used as a strategic tool, indicating that Bajaj Auto is now catering to the entire price and positioning span. Adds Ravi Kumar, 41, Senior Manager (Business Development), Bajaj Auto: "We have upgraded our testing methodology because we have had our share of troubles in the past."

SCOOTERS. Bajaj Auto is betting on 2 recent launches: the Legend, its first 4-stroke scooter (launch: August, 1998), and the Bravo, a 150-cc scooter with a 5-port engine (December, 1998). While the company continues to address the price-sensitive segment of the market, it is also tackling issues of styling and fuel-efficiency there. For instance, the Legend meets the proposed fuel-efficiency norms for 2000.

Priced at Rs 32,000, the Legend is also not as expensive as LML's most premium product, the Supremo SPL, which costs between Rs 34,000 and Rs 37,000. Instead, the Legend is priced at par with the Select II SPL, LML's next-most expensive product, available at between Rs 31,000 and Rs 34,000. The Bravo, meanwhile, retails at Rs 31,000, which is Rs 1,000 cheaper than the Legend, the comparable product from LML.

MOTORCYCLES. Bajaj Auto has 3 new variants: the Boxer, the kb-125, and the Bajaj Caliber. Pinning its hopes on the Caliber, Bajaj claims that the bike's vertical, aluminium engines deliver better performance than the horizontal, cast-iron engines of Hero Honda. Says Rajiv Bajaj: "Twelve months from now, we will be in a position to, once again, move up from No. 3 to No. 2. The million-dollar question, then, is: what happens between Honda and us?"

In terms of pricing, Bajaj Auto positions itself at par with Hero Honda. Caliber, priced at between Rs 41,000 and Rs 43,000 (depending on the city), compares with Hero Honda' Splendor. Acknowledges LML's Marketing Director, R.K. Caprihan, 54: "Bajaj (Auto) has become far more responsive to market needs. Caliber, for instance, is doing well, and will definitely help it in the motorcycles segment."

SCOOTERETTES. Bajaj Auto's selling proposition in this business is styling. For instance, the Spirit--launched in December, 1998--is targeted at young girls and housewives. The body parts and toolings were sourced from Europe, and the company expects the 60-cc scooterette to do well in the exports market. But Bajaj Auto has maintained its V-F-M USP by pricing the Spirit at between Rs 18,000 and Rs 22,000 against tvs-Suzuki's Scooty, which is priced at between Rs 21,000 and Rs 23,000. Says First Global Finance's 29-year-old Security Analyst, Kevin D'Silva: "The changes have come about slowly, but Bajaj Auto is taking a cautious approach."

Still, Bajaj Auto's numbers in January, 1999, look better: 70,500 scooters sold against 52,333 in December, 1998. However, the Caliber, the Legend, the Bravo, and the Spirit have not yet been rolled out nationally; instead, they are being tested in cities like Delhi and Pune. Adds Kotak's Mehta: "There is no doubt that Bajaj (Auto) has got in late. So, the meaningful increases in marketshare will come in only in the next 2 years." And there's more to come: 2 new motorcycles, the Prowler and the Eliminator; a scooter, the Saffire; and a 4-stroke 3-wheeler.

As these products are launched, and its other offerings go national, Bajaj Auto will have to learn to manage a larger product-portfolio. That will be difficult as more may not make merry in the 2-wheelers market, particularly in a year when the 10 per cent surcharges will pinch. Clearly, Bajaj Auto could not have asked for a tougher Millennium to drive into.

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