A CASE ANALYSIS REPORT ON

BAJAJ AUTO LIMITEDS BUSINESS STRATEGY

From market leader (Pioneer) to follower

Presented by: Prof. Dhananjay Beura

Prof. Tapas Ranjan Maharana

Global Institute Of Management, BBSR

Classification of two wheeler segment

Demographic classification Entry Level Price (Rs) Technology Brands

30-40000

Upto 100 cc

CD deluxe HHML Platina - BAL Passion, Splendour HHML Discover, Pulsar 135 BAL

Executive Level

40-50000

100-135 cc

Premium

Above 55000

150 cc & above

CBZ Extreme HHML Pulsar 150,180,220 BAL Honda Unicorn

The Indian Two Wheeler Industry

Started in 1950 Bajaj soon emerged as a leader(Pioneer) in the scooter industry In mid 80s foreign players were allowed to enter the market Witnessed remarkable growth till 2000

Factors influencing consumer behavior in two wheeler industry

Rising income levels Reducing excise duties Higher loan tenure Mounting traffic chaos & limited parking space Increasing woman working population Changing social philosophy and broad mindedness

Contd.
Key enablers: Favorable demographics Improving income curve Reducing interest rate Key challenges: Cost pressure High expectation Inadequate infrastructure development

Contd.
Key focus areas: Product development (Includes collaboration, new product development) Vendor base (quality of vendors, skill levels, size etc.) Manufacturing capabilities Service levels Supply chain Leveraging IT

Introduction
In 2003 Bajaj became one of Indias largest manufacturer of two and three wheelers. Recorded a revenue of Rs. 5125.73 Cr. In 1999 market share declined from 49.3% to 38.9%

Contd.
Three Segments

Mopeds

Motorcycles

Scooters

From 1990 demand for motorcycles started increasing

Background
Established in 1945 Bajaj products were in demand Didnt feel the need to introduce new products or upgrade the existing ones Centralized, paternalistic management style Competition became intense and market share declined

Strengths
1) Market leader in economy segment and premium segment
2) Monopoly in the three wheeler market 3) Able to keep raw material cost lower than the industry average 4) Widespread distribution network 5) Unchallenged leader in scooter market

Weaknesses
1) Delay in realizing the potential of motorcycle market 2) Highly centralized and paternalistic management style 3) Lack of models in ungeared scooter segment

4) Low ROCE because of huge cash reserves

Opportunities
1) Expected growth in two wheeler industry 2) Increase market share in the executive segment 3) Opportunity markets outside India 4) High demand for ungeared scooters 5) Penetration was low

Threats
1) Technologically sound and cash rich foreign players 2) High prices of raw materials like steel and plastic 3) Cheap imported motorcycles from china 4) Threat from low cost cars in the future

Facts/Problems associated with Bajaj Auto Ltd

Bajaj products were in demand Didnt feel the need to introduce new products or upgrade the existing ones Centralized, paternalistic management style Competition became intense and market share declined Condition worsened as demand for motorcycles picked up in early 1990 Did not take the segment seriously Launched 100cc bike Boxer with support from Kawasaki Was aggressively priced High level of backward integration helped keep raw material prices low Shift in preference from geared to non geared scooters Significant market share in the three wheeler market Bajaj gained market share in motorcycle segment through its models like pulsar , boxer and Discover

WHAT WENT WRONG??

Complacency Complacency
Motorcycle Market not realised
Change in preferences and trends

Technical Flaws

Contd.
No technological upgradation of products High Disposable ideal cash Risk averse investment portfolio 44% in Long term investments

The fall of an Icon

This case actually proved why adaptability towards change is inevitable. The facts and problems associated with Bajaj Auto Ltd. Are as follows: Pioneer advantage but not leveraging Structural demographic changes Change in consumer taste and preferences

Changing macro economic situation in the country

Changing technology requirements. Neglecting the effects of competitive forces. Commenting on Bajaj Auto Ltds loss of market leadership an article of Business Today commented Fact is Bajaj was slow in reading the shift from scooter to motorcycles.

Pioneer advantage but not leveraging

BAL failed to recognize these competitive force and didnt leverage their brand power in terms of offering new technology products for Indian consumer HHML

took over the reign from BAL.

BAL realized it very late during 1997 and 1998 and launched Bajaj Boxer and Bajaj caliber but that didnt work to regain the lost land as the competitors had already captured motorcycle market with their stylish and innovative models Despite of the pioneer advantage BAL also couldnt win the market in gearless

scooter which was trend during 2000.

Structural demographic changes

The major demographic changes took place are Growing no of youth people in India taking active part in consumer selection process of two-wheelers which shifted the demand from scooter

to motorcycle.
No of employed women has grown significantly to shift the demand from geared scooter to gearless scooters. Higher percentage of literacy and higher education level increased consumer awareness about technology and better fuel efficiency. Population shift from rural to urban helped in increasing demand of motorcycles.

Penetration of information deep in to the rural areas escalated the sales

of comparatively comfortable, fuel efficient, easy to ride big wheel motorcycles.

Consumer tastes and preferences

Pioneer has always advantage to be a leader in their own segment but complacency is a major disadvantage for them. gradually the consumer changed their taste and preferences as follows

Fuel efficiency
Low maintenance Trendy Fit to Indian rural roads Digital technology Quicker and safe Riding experience

Easy and convenient driving

Changing macroeconomic situation in the country

The growing middle class population, prosperous rural India and the paucity of reliable public transport system is leading to a large no of two wheelers added to the road every day.

Post 1991 economic liberalization Rise in industrial output caused higher

GDP growth and more purchasing power Growth in road infrastructure Rise in per capita income Easy availability of auto finance Higher loan tenure Hike in fuel price

Changing technology requirements

One of the very interesting factors for change in consumer taste and preferences during 90s is the wheel size. Scooters were 60-100 cc with 2 stroke engine and the scooters which was

launched with 4stroke engine were carrying same price tag almost at par with
motorcycles. Stringent emission norms also helped motorcycles to be a better choice than scooters Fuel efficiency by motorcycles was almost giving mileage double than scooters. HHML actually encashed this requirement of customer by following communication strategy fill it forget it

Increasing number of models with different features to satisfy diverse

consumer needs.

Contd.
CURRENT TRENDS AUTOMATIC START TRENDY AND STYLISH BODY NEW MODELS SLEEK AND LIGHT WEIGHT SCOOTERS

Neglecting the Effect of Competitive forces

Competitors - BAL didnt recognize the competitor strength and when the entire market shifted to another segment where the competitor is strong and customers are loyal towards their brand even low price strategy didnt work

Suppliers - The profit margin in the entry level motorcycle segment was not
so high so bargaining power of supplier increased and BAL couldnt withstand against its competitors

Buyers As HHML and other foreign players had many options for the entry segment with affordable price range BAL remained follower in buyers eye. New-entrants & Substitutes - In all the three segments of two wheeler new entrants gave a serious threat to BAL position and BAL couldnt sustain its

leadership position.

BAL Fights Back

Following the 'Motorcycle Way'
Bajaj Pulsar: Definitely Male Bajaj targeted the 18-24 with Pulsar but later found that the brand appealed to a much older audience. This helped Bajaj to change its target audience to 21-35 years.
Brand leveraging through Discover 135 to launch Discover 100cc

Learning curve

Bajaj had learnt a few lessons from its past failures and tried to incorporate them in the new bike package. For instance, it

had understood that it was not enough to harp on features;

the starting point for a customer was the brand, which reassures him.

RECOMMENDATIONS
Better late than never is a suitable line for BAL
Line extension in entry segment Emotional branding can be more useful than attribute branding in this segment BAL need to focus on entry segment as the two wheeler segment is growing faster in rural segment than urban. BAL should immediately focus in this segment reviving their strength in scooter segment(gearless) BAL can also focus on reengineering few of its good brand like boxer to focus in entry segment.

Annexure

COMPARATIVE INCOME STATEMENT

2001 Total Revenue Sales Other Income Change in stocks Non recurring income Expenditure Raw materials Wages and Salaries Energy Indirect Taxes Advertising and Marketing expenses Distribution expenses Others Non recurring expenses Profit/Loss PBDIT PAT Dividends Retained Earnings 3628.74 244.19 14.13 63.66 2085.47 245.14 71.03 575.8 204.94 35.46 194.82 112.59 425.47 249.95 89.21 160.74 2002 4172.1 190.61 -30.4 189.21 2323.71 231.48 63.64 533.48 200.41 37.02 238.62 31.25 861.9 518.16 27 141.66 376.5 2003 4829.37 179.85 32.58 83.91 2708.23 239.05 61.12 601.22 233.29 44.23 179.61 83.7 975.28 534.64 159.81 374.83

HERO HONDA
2001 PAT Dividends Retained Earnings 246.87 66.01 180.86 2002 462.93 349.67 113.26 2003 580.76 405.49 175.27

Two- Wheeler Industry-Changing Dynamics

Total Two Wheeler Year (unit sold) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1,503,172 1,763,210 2,208,213 2,660,005 2,965,474 3,042,347 3,403,471 3,776,719 3,745,516 4,318,531 5,053,562 Geared Scooters 41.80% 43.30% 42.60% 40.60% 38.40% 35.40% 32.70% 25.90% 16% 12.30% 6.71% Ungeared Scooters 9.40% 7.90% 8.60% 9.10% 8.90% 8.80% 8.30% 10% 10.90% 9.50% 10.50% Stepthru s

Motorcycles 20.20% 21.60% 23.90% 24.80% 27.10% 30.00% 34.60% 42.70% 54.10% 66.20% 74.40%

Mopeds

20.00% 8.60% 17.60% 9.60% 15.00% 9.80% 16.80% 8.70% 16.50% 9.10% 15.50% 10.30% 14.60% 9.80% 14.10% 7.30% 12.90% 6.10% 8.70% 3.30% 6.20% 2.2%66

INVESTMENT IN SURPLUS FUNDS

As at 31 March 2003 Govt. Securities & Bank Deposits Mutual Funds including UTI Debentures & Bonds Preferences Shares Inter Corporate Deposits Loan to Bajaj auto holding Ltd Fixed income investments Equity Shares based on Mutual Funds Total Cost Market Value 8,653 1,739 8,698 854 1,651 140 21,735 7,355 29,090 29,433

in

%to Total 29.7 6.0 29.4 2.9 5.7 0.5 74.7 25.3 100.0

As at 31 March 2002 5,797 510 4,040 917 2,609 184 14,057 8,499 22,556 21,235

% to Total 25.6 2.3 17.9 4.1 11.6 0.8 62.3 37.7 100.0

2003-2009

MOTORCYCLE SALES: THE INDUSTRY AND BAJAJ AUTO

SALE OF TWO WHEELERS(million units)

DOMESTIC SALES

ANALYSIS OF CURRENT POSITION

MARCH07 CURRENT RATIO QUICK RATIO DEBT EQUITY RATIO INTEREST COVERAGE RATIO PBDIT AS A % OF SALES PBIT AS A % OF SALES MARCH08 MARCH09 0.8813 0.8787

0.9539
0.8149 0.8397
48.18 12.50 11.01

0.8098 0.2937
283.62 20.13 18.11

0.6925 0.8404
201.04 14.22 12.25

PAT AS A % OF SALES
RETURN ON CAPITAL EMPLOYED

13.14
20.9

8.56
39.71

7.54
32.75

THANK YOU