Marketing Assignment

Review of HMSI
Syndicate Three

Syndicate Three – Marketing Assignment: Business Review of HMSI

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 Contents

I. Introduction
II. Strategy of rivals Vs HMSI

i. Strategy of HMSI
ii. Strategy adopted by TVS & Bajaj for increasing sales and countering growth of HMSI
iii. New Strategies adopted by Bajaj
iv. New Strategies adopted by TVS
v. Review of strategies adopted by Honda
vi. Review of strategies adopted by Bajaj
vii. Review of strategies adopted by TVS

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 Introduction
In this brief we shall discuss

i. Market growth rate

ii. Market size
iii. Competition(various companies operating within vertical)
iv. Describe scope of work/domains done by companies within that vertical and its
importance

The automobile industry has seen an overwhelming growth in liberal India. Almost every big
manufacturer has made its presence felt in the country. After the foreign direct investment
regulations were removed, many manufacturers saw India as a potential market. Most of the auto
manufacturers were in collaboration with the Indian companies after ’91 till ’99, when the rules
were changed; some of them still enjoy that. With many foreign manufacturers eyeing India as
the market, the giants were no exception and most of them are already having their
manufacturing or assembling facilities in India. Honda was into the Indian two-wheeler industry
from 1983, when it joined hands with Hero to start Hero Honda and with Kinetic to start Kinetic
Honda. Honda broke the ties with Kinetic in ’99 and set up its own 100% subsidiary called
Honda Motorcycle and Scooter India (HMSI) Pvt. Ltd.

HMSI laid its foundation stone in Manesar, Haryana in the same year and also signed an
agreement with Hero that it won’t manufacture motorcycles for the next five years i.e. till 2004
as Hero Honda was not into the scooter segment at that time. This gave Honda a license to
manufacture scooters at will and it did that by rolling out its first scooter, Activa in 2001 and
followed it with Dio in the same year. Honda now enjoys a large chunk of market share in the
scooter segment with Activa, Dio and now Aviator as its products. Honda introduced its first
motorcycle, Unicorn in 2004 in the 150cc segment which was followed by Shine in the 125cc
segment in 2006 followed by Stunner in the same segment in 2008. All these motorcycles were
highly appreciated and instant hits in the growing Indian market which over these years was
mainly dominated by Hero Honda and Bajaj Auto Ltd.

The main rivals HMSI is countering are BAL, Hero Honda and TVS in the motorcycle segment
and TVS, Hero Honda and Mahindra Kinetic in the scooter segment. HMSI is the market leader
in the scooter segment and is yet to have a major share in the motorcycle segment even though it
is growing at 32.24% on a monthly basis.

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The bike segment has a market growth rate of 43% with HMSI having a share of 18% The
biggest rival in this segment is HMSI’s sister concern Hero Honda with a share of 55%. The
scooter segment is having a growth rate of 32.24% and HMSI having a market share of 57.7%.
The nearest rival in this segment is TVS motors with a share of 18.7%.

References:
(http://www.indiaautomotive.net/2009/08/hero-honda-hmsi-sales-up-by-more-than.html)

(http://www.herohonda.com/invest_sales_performance.asp);

(http://www.financialexpress.com/news/our-100cc-motorcycle-will-hopefully-set-new-standards/442814/);

(http://www.financialexpress.com/news/our-100cc-motorcycle-will-hopefully-set-new-standards/442814/) ;

(http://www.financialexpress.com/news/honda-to-phase-out-geared-scooters/440044/);

(http://www.financialexpress.com/news/honda-to-phase-out-geared-scooters/440044/).

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 Strategy of rivals Vs HMSI

In 2007, out of every 100 two-wheelers sold in the country - only 12 were scooters. That number went up
to 16 in the past financial year and is projected to zoom to almost 20 this year. There’s more: the scooter
market grew in double digits last fiscal, outperforming the two-wheeler market, which grew 2.6 per cent
in the same period. The golden days of the early 80s, when scooters had a 64 per cent market share, are
still far away. But the revival signals are strong.

Scooter manufacturers said the 1.14 million-strong domestic market was expected to cross 2 million units
in the next four years. That explains the entry of a host of newer players in the segment, such as
Mahindra-Kinetic and Yamaha. Sensing competition, the established players — Honda, TVS Motors,
Bajaj Auto, Hero Honda and Suzuki — have hit the drawing board once again, to pull out flashy, high-
powered and un-geared scooters.

Scooter production stands at roughly 20% of the overall two-wheeler production

Year Two Wheelers Production (Bikes + scooters)

2002-03 5,076,221
2003-04 5,622,741
2004-05 6,529,829
2005-06 7,608,697
2006-07 8,466,666
2007-08 8,026,681
2008-09 8,418,626
(http://www.siamindia.com/scripts/production-trend.aspx)

HMSI has 55 per cent market share, followed by TVS Motors with 19 per cent and Hero Honda with 14.5
per cent and Bajaj managing a 11% market share.

Projected
Market share % Sales Growth / Decline % * Growth%
HMSI 55 32.24% 18%
TVS 19 14% 7
Bajaj 11 -12% NA
* based on year on year comparison with sales in July 2008
* Comparison of scooter sales.

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Strategy of HMSI

✔ Honda to exit geared scooter segment in India, the Japanese two-wheeler major Honda will exit
the geared scooter market in India and phase out its 150 cc model — Eterno — as the company
plans to focus on the gearless segment.
✔ The company would focus on gearless scooters in the future and with the launch of the new
Activa, HMSI is looking at a total of 18% growth in its two-wheeler sales in the next fiscal,
2009-10.
✔ The Company has entered the bikes market since 2004. This has led to a certain degree of
cannibalism between Hero Honda & HMSI. However, Honda motor company stands to gain out
of either company’s success.
✔ HMSI has a one-month waiting period for its new Activa (110 cc); six months before, it was just
10 days. Encouraged, it is ramping up its monthly production to 60,000 from 40,000 earlier.
✔ Honda remains committed to its promise to deliver superior technology and performance, even
though HMSI products are priced relatively higher than other companies in the market.

(http://www.livemint.com/2009/03/27143017/Honda-to-exit-geared-scooter-s.html)

(http://world1.rediff.com/business/report/2009/jun/20/for-scooters-its-yesterday-once-more-almost.htm)

Strategy adopted by TVS & Bajaj for increasing sales and countering growth of HMSI

Most companies currently produce scooters in the 100-125cc range that are targeted at customers who
want higher mileage and are ready to compromise on power. Generally, an entry-level bike (100cc) is
more powerful and economical than a gearless scooter.

To counter this, companies are working on scooter models that generate higher power without
undermining the fuel economy. The result will be a product that matches the performance of motorcycles
while being more comfortable, agile and easy on the pocket.

They also aim at developing E- scooters

➢ Chennai-based TVS Motors, makers of Scooty, are developing a premium un-geared scooter that
will be more powerful and superior on design and styling. The company is learnt to have
developed a new platform, much more powerful than the 90cc Scooty.
➢ The country’s second largest bike maker, Bajaj Auto, is also developing a completely new, un-
geared, scooter. To be launched in 2011, it is aimed at taking on the products of HMSI. This
product will be high on power output, like the company’s current bike range, but will not
sacrifice on fuel economy.

(http://www.business-standard.com/india/news/for-scooters-it%5Cs-yesterday-once-more-almost/361608/)

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New Strategies adopted by Bajaj

Major emphasis to be on new product launches.

Have a new scooter market under development – will be launched early 2010.

Plan to launch a three-wheeled motorcycle, to cater to a niche segment.

Bajaj expects stronger growth in the first quarter of FY'10 powered by the continuing success of the XCD
135 DTS-Si as also the launch of product upgrades off the Pulsar platform

As a result of the recent stake hike by Bajaj Auto, KTM now has Rajiv Bajaj on its board and the
cooperation agreement between the two companies covers product development, technology, vendor
sourcing and distribution.

Existing Products New Launch's in 2009

Bajaj Bajaj Kristal DTSi XCD 135 DTSi
Pulsar XCD Sprint
Discover 135 DTSi Discover 100 DTS-Si
Platina 100, 125 DTSSi Kawasaki Ninja 250R

(http://www.livemint.com/2009/01/11224551/Bajaj-Auto-plans-new-models-to.html)

(http://www.autoexpo.in/news08/news_aug4.asp)

New Strategies adopted by TVS

Chennai-based TVS Motors, makers of Scooty, are developing a premium un-geared scooter that will be
more powerful and superior on design and styling. The company is learnt to have developed a new
platform, much more powerful than the 90cc Scooty.

Targeting young women who need mobility and whose daily travel is limited to around 15-25 km per day,
with the E-scooter series - Scooty Teenz Electric.

TVS is also considering increasing its market share in the premium bike segment by launching new
APACHE 180. Of late, there has been a constant rise in the demand of the premium segment and TVS
don’t want to lag in grabbing the opportunity.

Existing Products New Launch's in 2009

TVS Apache 160 RTR, RTR Fi Apache RTR 180
Star, Star City Unisex >=100cc scooter
Scooty Pep, Pep+
Teenz
(http://www.livemint.com/2009/07/28213546/TVS-plans-highcapacity-gearle.html)

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Review of strategies adopted by Honda

The first bike launched by Honda, Unicorn was launched in the existing 150cc segment which was mainly
dominated by Pulsar series and later TVS Apache also chipped in within the competition. Same was the
case with Shine, its second bike in the 125cc segment. After this, Honda slightly moved away from
convention by adopting a new strategy of segmentation by creating a segment within two existing
segments. In 2008, Honda launched a 125cc Stunner CBF intended for not the conventional 125cc
segment but just between 125cc and 150cc segment. Honda did not compromise on the feature rich and
technologically sound product and not on the price either. The price of this bike was 50-60 thousand, thus
overcoming the price void between the 150cc and 125cc bikes. The competitors sell their 125cc bikes at
40-50 thousand while the price of 150cc segment starts somewhere around 60 thousand. This pricing
strategy of Honda has paid well and now they are planning to penetrate the gap between the existing
100cc and 125cc segments by launching a new feature laden and technologically sound 100cc bike. Again
Honda has clearly announced that the price of this bike won’t be in the conventional 100cc range but
slightly more than that.

Review of Strategy adopted by Bajaj

Looking on the recent information on Bajaj; we may believe that they haven’t been able to tackle the
market successfully. In-spite of losing market share for the last quarter, Bajaj looks determined to get
back to the leadership position it was once accustomed to. It is looking to consolidate in the 100cc
segment as well as launch new model which appeal to the younger generation.

Bajaj has many firsts to its name, not catering to consumer needs is one – a mistake it has made and
hopefully learnt from. It now aims to revive it scooter business and also its tie-up with KTM will make
sure it stays updated technologically. HMSI has been able to counter Bajaj’s growth by adopting
innovative policies, unheard of yet in the Indian Two-wheeler market.

Review of Strategy adopted by TVS

TVS has not been able to make significant inroads into the market due to two main reasons – Its new
product launches have been delayed and it has not been successful spoiling Honda’s party! TVS now
aims to launch new bikes and is also looking at capitalizing on the E-scooter market. It hope to lure
customers by offering lower priced models, as well as the promise that these products are low on
maintenance.

HMSI has been consistent in shipping out scooter and bikes which have all these attributes and more.
What remains to be seen is how successful TVS is in the next few quarters in taking Honda head on!

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 SBU Market Market Share Market Share Relative Quadrant
Growth Rate Of Nearest Market Share
Rival

Bikes 43 18 55 0.33 Question

Mark

Scooters 32.24 57.7 18.7 3.08 Star

(http://www.financialexpress.com/news/our-100cc-motorcycle-will-hopefully-set-new-standards/442814/)

(http://www.herohonda.com/invest_sales_performance.asp)

(http://www.financialexpress.com/news/our-100cc-motorcycle-will-hopefully-set-new-standards/442814/)

http://www.financialexpress.com/news/honda-to-phase-out-geared-scooters/440044/

RELATIVE MARKET SHARE

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 STAR Question Mark

(Scooters) (Bikes)

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CASH COW DOG

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On what basis do you think company has formed SBUs

The Indian automobile market is primarily driven by consumers demanding fuel efficient and
low maintenance vehicles. Also the market demand is driven by the middle class, hence HMSI
sub-divided its two-wheeler manufacturing into two strategies units namely: Bikes and Scooters.

Is the portfolio healthy?

The market has seen an extra-ordinary growth and HMSI has been quick to capitalise and is now
threatening the local players into reviewing their strategies. HMSI currently is the market leader
in scooter segment and grabbing up share in the motorcycle segment.

Suggest strategies to be pursued for each SBU

Scooter is already a market leader hence it has to carry on with that and its catching up on bikes
as well but the thing is it is still a psyche of lower middle class that it is a high end automobile
provider which is marring its market to TVS and Bajaj in bikes and to mopeds in scooters sectors
hence in case it wishes to capture on that it can introduce a little less range scooters in the
gearless category to target young, female and old riders and in case of bikes the marketing
strategy needs to be changed to portray it as value for money and "not so expensive"

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