SEGMENTATION OF TWO WHEELER

A Two Wheeler Sector Sub-Segmenting in the three Segments. 1. Motorcycle 2. Scooter 3. Mopeds

Breakup of the Industry by Segment

Scooters 12% Mopeds 5%

Motorcycles Scooters Mopeds

Motorcycles 83%

Segment-wise Analysis of Indian Two Wheeler Market Segment A1 Description share in 2001-02 Share in 2006CAGR 07 with 5% 0% 33.99%

A2

Scooter engine capacity less than 75 cc Scooter with 5% engine capacity between 75-125 cc (Scooterette) Scooter engine capacity between 125-250 cc Motorcycle engine capacity between 75-125 cc Motorcycle engine capacity between 75-125 cc Motorcycle engine capacity between 75-125 cc Mopeds

10%

32.9%

A3

with 12%

1%

-27.7%

B1

with 62%

66%

14.9%

B2

with 5%

17%

44.8%

B3

with 1%

1%

5.7%

C1

10%

5%

-2.7%

Growth Prospects and Key Drivers of the Indian Two Wheelers Industry

The growth witnessed by the Indian two wheeler industry indicates the growing demand for low cost personal transportation solutions amongst the 300 million Indian middle class consumers. Despite this spectacular growth rate, the two wheeler penetration (number of two wheelers per 1000 inhabitants) in India remains lower than other Asian countries. This fact provides an opportunity for continued growth in the market. India has the lowest Penetration of two wheelers as compared to countries like Taiwan, Thailand, Malaysia, Vietnam, Indonesia and China. In the present scenario, growth in the two wheeler Industry will be driven by several factors: Rise in Indias Young Working Population

With the rising levels of per capita income of people, the Indian two wheeler market offers a huge potential for Growth. This growth is relevant in the light of the fact that 70 per cent of Indias population is below the age of 35 Years and 150 million people will be added to the working Population in the next five years. The number of women in the urban work force is also increasing; this will lead to the Growth of gearless scooters. Rise of Indias Rural Economy and Growth in Middle Income Households

The growth prospects of the Indian rural economy offer a significant opportunity for the motorcycle industry in India. The penetration of motorcycles amongst rural households with income levels greater than US$ 2,200 per annum has already increased to over 50 per cent. The current target Segment for two wheelers, i.e., households belonging to the Income category of US$ 2,20012,000 is expected to grow at a CAGR of 10 per cent. Greater Affordability of Vehicles

The growth in two-wheeler sales in India has been driven by an increase in affordability of these vehicles. An analysis of the price trends indicates that prices have more or less stagnated in the past. This has been part of the marketing strategy adopted by the manufacturers to gain volume, as well as conscious efforts adopted to bring down costs. The operating expenses of leading manufacturers have declined by around 15 per cent in the last five years. With greater avenues of financing, the customers capacity to own a two wheeler has improved.

Rapid Product Introduction and Shorter Product Life Cycle

The last five years have witnessed a sharp increase in new product launches in the two-wheeler industry. It is estimated that close to 50 new products have been launched by manufacturers during this period, filling up all price points and targeted at various consumer segments.

Inadequate Public Transport Systems in most Urban Areas The economic boom witnessed in the country and the increased migration to urban areas have increased the traffic congestion in Indian cities and worsened the existing infrastructure bottlenecks. Inadequate urban planning has meant that transport systems have not kept pace with the economic boom and the growing urban population. This has increased the dependence on personal modes of transport and the two wheelers market has benefited from this infrastructure gap.

Challenges faced by the industry

Despite the high growth achieved in the past and the high potential in the future, the twowheelers market faces some challenges.

Rising Customer Expectations The growth witnessed by the Indian two wheeler industry has attracted a number of new entrants to the market and it is expected that the Indian industry will become more competitive in the future. The plethora of products introduced in the past has also raised customer expectations with respect to reliability, styling, performance and economy.

Environmental and Safety Concerns The increasing demand for two wheelers will need to be managed to address issues relating to overcrowding of roads. Another problem is the insufficient infrastructure for inspection to ensure adherence to emission norms. As the industry grows, it is important to regulate the sale of used

two wheelers in a more organised manner for which a mechanism needs to be evolved. Unregulated sale of two wheelers, especially in the rural areas, are likely to create issues related to emissions and safety of vehicles.

Creation of Distribution Infrastructure Leading companies need to ensure that on one hand they build adequate infrastructure in terms of dealerships and servicing stations in the urban areas and on the other ensure that their distribution infrastructure also reaches the rural areas

COMPANY PROFILE
Hero Cycles and Honda Motor Company of Japan linked their joint venture in India in April 1984, few could have imagined that the two would go on to create history and become the subject of a case study at business schools, internationally. But that's the Hero Honda saga. In a little over two decades, the world's largest manufacturer of bicycles and the global leader in motorcycles have created not only the world's single largest

motorcycle company but also the most endearing and successful joint venture for Honda Motor Company worldwide. The company has sold over 15 million motorcycles and has consistently grown at double digits since its inception and today, every second motorcycle sold in the country is a Hero Honda. In two decades, Hero Honda has built two world-class manufacturing facilities at Dharuhera and Gurgaon in Haryana that now churn out over 3 million bikes per year. In this period, Hero Honda has set up over 2400 customer touch points, comprising a mix of dealers, service centres and stockists across rural and urban India. Today, Hero Honda is an amalgam of winning networks and relationships with internal and external stakeholders, including Investors, Dealers, Vendors and Employees. These relationships have helped the company hold on to the mantle of World No.1 for years in succession. Hero Honda has relied on 3 R's-- Reach, Research and Reliability as its basic building blocks. Using feedback from the market, a fully-equipped R&D centre has consistently created best practices in designing, testing and harmonization, besides placing strong emphasis on road safety and ride quality. This emphasis has helped Hero Honda build products that are ahead of their time. In the 1980s, for example, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it Shut it - Forget it' CAMPAIGN captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage. Hero Honda was also one of India's first automotive companies to get close to the customer. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly puts it, "We pioneered India's motorcycle industry, and it's our responsibility now to take the industry to the next level. We'll do all it takes to reach there.''

Key Highlights

Hero Honda enjoys a significant brand premium. Its aggressive pricing strategy to take on the competition has helped it in volume growth. Variant launches in each of Splendor and Passion has helped in stemming the loss in market share in the face of the competition. Hero Honda now plans to launch two new models in the 100cc segment in FY05 on a new platform.

The company has started logging good volume growth after the launch of Passion Plus and Splendor Plus as well as the CD-Dawn, which has also rejuvenated its product range. Volumes should improve further, due to the base effect and improved rural sentiment on the back of higher farm incomes.

Aggressive cost controls and significant economies of scale are expected to aid Hero Honda in retaining margins. Hero Honda will continue to be an attractive dividend yield play as the company continues to generate significant free cash flows as its capital requirements are limited

Marketing MIX

PRODUCT
Product Range and New Models The Company's product range includes "Splendour" which is the largest selling motorcycle brand in the world with over 6.9 lakhs vehicles sold in 2000-01. A cumulative over 5 million customers are the real foundation of the company's strength. The identity of Hero Motors in the market has been established through two of its leading international products - Hero Puch and Hero Winner. When Hero Motors entered into a technical collaboration with Styr Daimler Puch of Austria, Hero Puch was born which marked a new chapter in the two-wheeler scenario of the country. Hero Puch, the mini-motorcycle designed by Ferdinand Porsche combined the power (4.15 bhp) and ease of a motorcycle and at 91 km/hr, the economy of a moped.

CASE STUDY OF HERO HONDA HUNK

Hero Honda new Bike hunk launched with a new features after the study of market research by company A sure-shot head-turner, the Hunk comes with never before features and looks:Product highlights:

150cc Engine, delivering raw power of 14.2 BHP @ 8500 RPM and a torque of 12.80 Nm @ even at a low RPM of 6500

Unmatched super acceleration of 0-60 Km ph in flat 5 seconds New Generation "Advanced Tumble Flow Induction" (ATFI) Technology engine which delivers the best balance of Fuel efficiency and Power

Advanced Microprocessor Ignition System -"AMI" with Multi Mapping Digital CDI along with "Carburettor controlled Variable Ignition" delivers the optimum Power, quicker throttle response and Fuel efficiency

Unique "Anti-Kick back" device prevents Kick back during starting - convenient, safe and effortless kick start.

PRICE
Faced with an uncomfortable scenario of Bajaj Auto closing in on Hero Honda Motors in monthly unit sales, managing director Pawan Kant Munjal said the company has put in place a strategy to retain its leadership in the Rs 33,000 crore two-wheeler markets. That includes developing new high-performance engines in 100cc, expanding capacity to beyond 5 million units and reducing the price of 100cc bikes, if needed. As confident as they are of upstaging us, we are confident of retaining our leadership and growing our lead, Munjal told FE in an exclusive interview. Reiterating that unlike Bajaj, which is exiting the 100cc segment, Munjal said Hero Honda intends to strengthen its offerings in the segment. He said the company is developing new engines that will deliver superior performance in the 100cc bikes in future.

To counter Bajajs move to offer 125cc bikes at the price of 100cc bikes, Munjal said Hero Honda could reduce prices of its 100cc bikes to nullify Bajajs strategy. Bajaj Auto plans to exit the entry-level motorcycle market by August-September next year and offer higher capacity bikes in the 100cc price range of Rs 34,000 to Rs 42,000. We have dominated the 100cc segment for many years and will continue to dominate. Possibly it may be the reason for Bajaj Auto leaving the segment, Munjal told FE. The gap between Hero Honda and Bajaj Auto has narrowed from 92,206 in September, 2005 to 37,833 in September, 2006

PLACE
DEALER NETWORK At Hero essentially they have a completely customer-driven approach. A nation-wide dealer network comprising of over 3,500 bicycle dealers, 350 dealers for mopeds and 225 franchise holders for motorcycles, ensures convenient access to the Group's products across the country. Strong dealer company relationship with a deep sense of belonging to the Hero fraternity, the Group's dealer network has catalyzed growth and acted as a strong bridge between the customers and the Group. Sales agents from Hero travels to all the corners of the country, visiting dealers and send back daily postcards with information on the stock position that day, turnover, fresh purchases, anticipated demand and also competitor action in the region. There are more than 1000 committed dealers & service outlets spread across the country. The authorized workshop have well laid out standards for motorcycle servicing supported by fully equipped infrastructure in terms of quality precision instruments, pneumatic tools & a team of highly trained service technicians. Having your motorcycle serviced at an authorized workshop ensures highest standards of service quality and reliability

PROMOTION
HHML is an organization, which is known for its innovative & Aggressive Marketing. Rs.120 crores was the Annual budget for market for the financial year 2002-2003. All the mediums are used extensively, be it print or mass media like T.V & hoardings. HHML also promotes sports in the country. It is also the sponsor of the ICC world Cup 2003 and half of the Indian team represents Hero Honda. Those players are Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh, Zaheer Khan and Sourav Ganguly as Brand Ambassadors. Superstar Hrithik Roshan is also a Brand Ambassador for Hero Honda Company. They will endorse the company products, attend corporate and brand events and help promote its "We Care" campaign comprising safety riding, environment and friendliness Also, advertising is done at a local level by dealers, in which HHML also contributes to help dealer promote the dealership in the local area. HHML has print ads that the customer gets to see almost every day in newspapers, magazines, etc. This has increased the brand recall by a significant number. They also have their bikes featured in various TV programs like top drive on star news and others which act as a strong reference.

ADVERTISING STRATEGY
Hero Honda is currently the number one company in terms of sales and has been dominant in the two-wheeler segment since the past decade. Since the inception of hero Honda, the company has been using television as a major role for its publicity. Though hero Honda was dominant in sales it lacked the skills of creating a spectacular ad till now. Though it had a vast range of mobikes, its advertising strategy was not up to the mark. For its publicity hero Honda has been using many famous celebrities like Saurav Ganguly, the captain of Indian cricket team, Hritik Roshan and other famous personalities as their brand ambassadors. Thus, hero Honda has been spending huge amounts on its publicity.

Print adds

Glamour

Some of the Events Sponsored During the Years

2000 NKP Salve Challenger Trophy. Stardust Hero Honda Millennium Honours Award. Masters Golf Championship. 20th Cinema Express Award. 2002 India-England Women's Cricket Series. Masters Golf Championship. Second Indian Television Academy Award. 21st Cinema Express Award. First Indian Television Academy Award 2003 8th Cricket World Cup in South Africa.

HERO HONDA ROADIES

To attract young generation Hero Honda sponsored MTV Roadies. It is the one of the most popular Show among youngster. A Live reality show in which some group of people travel across the country on the bike. They ride HERO HONDA KARIZMA. This show become the key factor in promoting the bike karizma

between the youngster

HERO HONDA CAMPUS ROCK IDIOLS In today scenario in India rock culture is becoming very popular among youngster. To capture this young generation, Hero Honda is organizing Campus Rock Idols every year at all over major cities in India.

HERO HONDA SA RA GA MA PA CHALLANGE

Brand Ambassadors CRICKETERS

Hero Honda promotes his cricketers brand ambassadors as a Team Ambition in 2003 World Cup. The 'Team Ambition' has many similarities in personality with the Hero Honda brand, such as 'splendor of performance', 'passion to excel' and 'ambition to win', signifying their respective desires to lead the way

Hero Honda, through the advertisements, hopes to communicate the brand identity to its customers in a language and appeal that is well identified and comprehended by them.

FILM STAR
Hero Honda signed bollywood star Hrithik Roshan for his premium bike Karizma. The customised all-chrome Karizma, a very stylish bike that truly befits his brand ambassador and style icon Hrithik Roshan

BOLLYWOOD STAR HRITHIK ROSHAN

HERO HONDA SIGNED MAHESH BABU A SUPERSTAR IN ANDHRA PRADESH TO CAPTURE MARKET IN AP

Hero Honda -Indias number one two wheeler in sales. Now this big company is roping Mahesh Babu as their Brand ambassador for AP. The company is very much confident that young Mahesh Babu brings them up in their sale figure and at the same time Mahesh Babus fan following will be utilized for brand image of Hero Honda.

HERO HONDA KARIZMA

Hero Honda Karizma was the first real sports bike in India. The bike addresses to those who have a passion for speed and styling and head-turning looks. It has 17 ps power thrust and picks up 0-60 in 3.8 heart-stopping seconds. The bike is based on power and styling. Disc brakes and Mag wheels makes Karizma the safest jet on the road.

Company Stroke Maximum Power Displacement Hero Honda Motors India Ltd. 4-Stroke 16.8 bhp @ 7000 rpm 232 cc Striking Features: 1. Style 2. Sporty position of the seat. 3. It stands on its feet even at speeds reaching up to 130 kmph.

S.W.O.T. ANALYSIS OF KARIZMA

STRENGTH

 It has a good speed and sporty look . Karizma is the First bike in India launched under Sports Bike Segment. Loyal Customer Base: In the past four years, Karizma has been successful in building up a good and loyal base among its customers. After Sales Service: Till today, customers are satisfied with the after sales service provided by Hero Honda for this particular product. Refinement, comfort, great handling and that much-sought-after big bike feel are all available on the Karizma. Brand Recall: the name Karizma itself is a metaphor to its success. The brand Karizma has given a good platform to this product in the Sports Bike Segment.

WEAKNESS
High Maintenance: The maintenance of Karizma is high as compared to its biggest competitor Bajaj Pulsar 200cc and 220cc. Fuel Efficiency: The pulsar 200cc offers an impressive mileage of 38.3kpl in city and 42.4kpl in highway against the Karizma offers only 30kpl in city and a decent figure of 45kpl in highway. Less Promotion: the promotions and ads of Karizma are very less as compared to its competitors.

OPPORTUNITIES

 If Hero Honda comes up with the idea of changing some features of Karizma, like self cancelling indicators, soft touch handle bar and digital speedometer, it will help them to boost up the sales of Karizma. If they are able to improvise the fuel efficiency of Karizma, it will be a golden opportunity to take over the market.

THREATS
The major threat faced by Hero Honda Karizma is from Bajaj Pulsar, who has always been the market leader in the 150 plus segment with 60% market share.

Karizmas strong competitors Bajaj and TVS, in 150 cc plus segment, already posses certain features like self-controlling indicators, soft touch handle bar which Karizma lacks. The competitor Pulsar 200cc has already come up with oil cooled engine which delivers maximum power. This is again a major threat to Karizma.

S.W.O.T. ANALYSIS OF COMPETITOR

(BAJAJ PULSAR 220cc)

STRENGTHS
Pulsar 220cc features Indias First Oil Cooled Engine which delivers maximum power making it most powerful engine offered by Bajaj. New Pulsar also provides Digital Speedometer, Self Cancelling Indicators which is for the First time in this segment in India. Fuel efficiency: Pulsar 220cc delivers an impressive mileage of 38.2 kmpl in city as compared to Karizma which delivers 30 kmpl in city. Customer Base: In past decade Bajaj has established a strong base amongst its customers.

WEAKNESS
Style and Design: PULSAR 200cc and 220cc derives their styling from there previous version Pulsar 150 Dts-i and 180 Dts-i. Pricing; Bajaj 220cc (Rs 82449 basic price) is costlier than karizma (Rs 78000 basic price)

OPPORTUNITIES

 Taking into consideration the reviews of the customers regarding the fairing of 220cc and making the needful changes will be an opportunity to capture an even larger share of the 200cc+ segment.

THREATS
The biggest threat is faced from the goodwill of Karizma in this segment who is the FourStroke Two Wheeler Ruler of the Indian bike market.

Certain technical faults in the bike design which are potentially dangerous to the riders safety can be disastrous to the image of the bike.

Brand Image create By Bajaj

Brand image create by Bajaj through his pro bike showroom which display his premium bikes range such as pulsar 220, Avenger, Pulsar 180 etc.

BAJAJs Pro Bike Showroom The Bajaj Prebaking showrooms will definitely be one of the integral elements in his overall brand strategy to reinforce the image of Bajaj being a manufacturer of quality performance motorcycles in the country. It's the retail experience a dedicated biker feels when he or she steps into a Probiking outlet. It's a new space they have created and there's a completed. lot of work to be

BAJAJ PULSAR DEFINATELY MALE

Bajaj pulsar make an image of that there bike is only for guys. Through his Definitely Male Campaign they shows behave of a young guys. This Advertisement helped lot Bajaj to create brand positioning.

Chatting merrily, three girls Walk by a line of motorbikes.

One's

dupatta

skims

over

the

bikes and then gets stuck...

...making her turn in Consternation. She pulls it away Slowly to reveal...

...

The

logo,

"Pulsar".

MVO:

Bajaj

Pulsar, definitely male

MARKET MIX OF KARIZMA

PRODUCT

DESIGN, ENGINEERING AND INTERIORS

Hero Honda has taken a lot of styling cues for this bike from Hondas old model VFR 800, the Japanese giants legendary and largest selling superbike. Similarities are visible in the alloy diecast wheels, the tailpiece, the front indicators, the fairing, the silencer unit, seat, panel shapes and instrument binnacle. Even the way Hero Honda has painted parts of the side panels silver to look like exposed aluminium frame sections, reminds one of the genuine thing on the VFR. One cannot help but think that the steering column section of the bike looks crude and empty just below the handlebar mounts. Fit and finish is excellent and no less than the high standards we have come to respect Hero Honda for. The company has kept with the times, and grafted an aircraft-type fuel filler cap onto the tank. The tank recesses easily accommodated the legs of our tallest testers. The amber backlighting for instruments is exciting. Being connected directly to the battery, all lights and instruments work independently of the rpm of the engine, and are a boon at night.

BRANDING:

BRAND NAME: KARIZMA In Hindi, KARISHMA means something inexplicably magical. In English, CHARISMA (pronounced Karizma) means the ability to inspire followers with devotion and enthusiasm. The way this bike has turned out to be, it is probably both. The monogram of Karizma itself is very attractive and eye catchy because of the colour.

In order to overcome the competition faced from its biggest competitor bajaj220 dts-I, the company has tried to attract the customers by changing the graphics of Karizma i.e. an attractive new logo, which represents the bikes cutting edge imagery of being racy. International styling graphics with a pronounced `R on the tank and an asymmetrical one on the visor in keeping with the latest international trend.

PRICING

the new Karizma will also continue to be priced at almost the same level as the previous version, with on-road prices for the regular variant working out to Rs 79,000-80,000. The special edition variant with red mag-wheels will be costlier by about Rs 1,000. Bajaj has launched 52 Prebaking outlets which will house only high performance bikes. Pulsar 200cc would be available at such Probiking showrooms at select locations across the country for an attractive price of Rs.65, 497 (ex showroom, New Delhi).

PROMOTION
ADVERTISEMENT:

Hero Honda Karizma Agency: A fighter plane is on a regular sortie when the pilot notices a moving object. Zooming his camera, he captures a bike cruising at high speed. Informing the control tower, the pilot dives in for a closer look.

The bike gathers speed and enters a tunnel to beat the fighter aircraft. Reaching the air-base, the

rider meshes with the staff as they examine the images... ... of the motorcycle, unaware that its owner is amidst them. MVO: "Hero Honda Karizma. Jet Set Go."

The all-new-Karizma has been created by the Hero Hondas research and development team to mark the companys highest-ever sales of over 3.03 lakh units in May 2006. Celebrating its milestone of rolling out 15 million bikes, two-wheeler major Hero Honda, presented a tailor-made all-chrome Karizma motorcycle to Bollywood star Hrithik Roshan. This super bike will surely match my super hero image, Hero Honda brand ambassador Hrithik said, as Hero Honda Managing Director Pawan Munjal handed over the keys to the star.

HERO HONDA MTV ROADIES

In mtv roadies the all competent use only the Hero Honda karizma bike from the last six years. So, by sponsoring the show hero Honda promoting their brand karizma among the youngster.

The Hero Honda family is elated to have achieved the landmark figure of 15 million motorcycles in the shortest ever time-span. The customized all-chrome Karizma truly befits our brand ambassador and style icon Hrithik Roshan, Mr Pawan Munjal said. Group Chairman Brijmohan Lall Munjal said, entertainment and sports are everyones favourites. Though, they are not physically involved in sales, celebrities help in promoting the product, he said.

PLACE
CHANNELS OF DISTRIBUTION As a company, dealers play a major role in serving customers, while growing and sustaining markets. Hero Honda has a network of more than 3500 strong and dedicated Authorized dealers. A network that has helps Hero Hondas name and its promise of reliable quality to every part of the country. The power of this highly efficient and motivated network goes a long way to create goodwill for Hero Honda brand among countless consumers besides creating availability and after sales services.

The channel of distribution is a direct dealer network. A direct dealer is a dealer who is authorized to purchase the product directly from the company and sell.

PHYSICAL DISTRIBUTION:
As a company, dealers play a major role in serving customers, while growing and sustaining markets. Hero Honda has a network of more than 3500 strong and dedicated Authorized dealers. A network that has helps Hero Hondas name and its promise of reliable quality to every part of the country. The power of this highly efficient and motivated network goes a long way to create goodwill for Hero Honda brand among countless consumers besides creating availability and after sales services.

CONCLUSION
Indias expedition to become a global auto manufacturing hub could be seriously challenged by its inability to uphold its low-cost production base. A survey conducted by the research, KMPMG firm reveals that the Indian auto component manufacturers are increasingly becoming skeptical about sustaining the low-cost base as overheads including labour costs and complex tax regime are constantly rising. The survey said many executives believe that Indias cost advantage is grinding down fast as labour costs are constantly increasing and retaining employees is becoming more and more difficult. Increased presence of global automotive companies in the country was cited as one of the reasons for the high erosion rate. Indian auto businesses will only flourish if they boost investments in automation. In the longer term, cost advantage will only be retained if Indian capital can be used to develop low-cost automation in manufacturing. This is the way to preserve our low cost. Global auto majors are also cynical about Indias low cost manufacturing base. India taxation remains a big disadvantage. This is not about tax rates it is just about unnecessary complexity. But some companies also believe there is scope for reducing the cost of doing business.

In spite of this there are opportunities to exploit lower costs right across the board. Its true that labour costs are definitely increasing but they are still five per cent of the total operational costs. The labour costs can be further reduced if companies are successful in bringing down other costs like reducing power costs. Low-cost base can never last long. The company said Indian industry has till now relied on very labour intensive model but it would have to switch to a more capital intensive model