Why Splendor is so critical for Hero Honda

October 2006. The monthly sales figures for two-wheelers had just come in, and Bajaj Auto, the No.2 two-wheeler manufacturer, had dramatically closed the gap with market leader Hero Honda Motors (HHML) to about 30,000 units. The consensus was that it was only a matter of time before Hero Honda would vacate its spot as the largest-selling two-wheeler company in India.

Come May 2007, and the launch of the Splendor NXG in Delhi, and it is a different scenario. There is no more any talk about Bajaj Auto overtaking Hero Honda. In fact, the sales figures for April indicate that Hero Honda is firmly entrenched as the market leader with a lead of over 100,000 units a month.

“Six or seven months ago the gap had narrowed significantly, but we were not overly worried because we had the products and strategy in place,” says vice-president, sales & marketing, Anil Dua. That strategy included a slew of new products that included the fuel injected Glamour, Passion Plus (special edition), CBZ Xtreme, Pleasure, Karizma, CD Dawn, CD Deluxe and Achiever.

COMPLETE DOMINATION

This launch list is also a pointer to Hero Honda’s strategy for continued supremacy. In it are several offerings in the entry and deluxe segments of motorcycles where the company holds complete sway. In fact, the deluxe segment, which is the largest segment of the market accounting for more than 50 percent of all sales, is Hero Honda’s forte. Its Splendor and Passion – and Glamour to a lesser extent – complete the dominance here.

“The deluxe segment has been our fortress. We understand customer needs, and the eight models we have launched lately are all in line with this understanding. We are probably the best represented manufacturer in that we have products that cater to all types of customer needs,” Dua says. What this understanding has led to is the creation of durable brands like the Splendor. Last year, the company sold a world record 1.1 million units of the motorcycle. And cumulative sales, since its launch in 1994, stand at over 8.5 million units.

LATENT DEMAND

“That is the power of the Splendor brand. Over the years, it has stood for trust, reliability, trouble-free performance, excellent mileage and low maintenance cost. We believe in building brands and we have a set of powerful brands. We will invest in these brands,” he says.

This means that the Splendor Plus and the newly launched NXG will co-exist because Dua feels that there are many of customers who still want to own a Splendor Plus. “Our strategy is not to create gimmicky products. We will continue to identify real customer needs and segments and keep offering products and brands that meet those needs,” he elaborates.

##### Dua says that his company is committed to staying and growing the deluxe segment of the motorcycles market. He reasons that growth is inevitable because penetration of two wheelers is not very high. In urban markets it is 25 percent and in rural areas it is as low as eight percent. Almost all segments of the motorcycle industry registered double digit figures last year, which would indicate a broad-based growth across segments.

PRODUCT STRATEGY

“The rate of growth in the premium segments looks more dramatic because we are starting from a smaller base. In real terms, however, even a 12 percent growth in the deluxe segment translates to nearly 400,000 units of sales, and that is a huge growth. This is where the numbers are, and that is why we are interested in growing this segment,” he says.

The strategy, therefore, is clear: service different customer expectations and needs with a few platforms and many variants. “As a company, we do not want to go in for a very large number of platforms – that is where the cost gets added, and not in variants. Our strategy is to amortise cost through variants on one platform catering to various customer needs and aspirations than several platforms,” he says.

That said it is also a fact that customer aspirations have changed over the years. Although, the deluxe segment – which the Splendor dominates – accounts for about half of all motorcycle sales in India, the executive segment – where Bajaj Auto’s Discover is the most dominant player – has seen a steady increase in numbers in the last 18 months alone. The question that begs to be asked is this: In the long run could Hero Honda’s single-minded devotion to the entry/deluxe segment turn out to be its nemesis?

CUSTOMER DELIGHT

In the short term, there really is no threat to the company’s dominance of the market. And the numbers back this. But they also hide the fact that take away the nearly 120,000 units that Splendor family sells monthly from this segment, and Hero Honda and Bajaj are almost neck-to-neck. So a lot hinges on steady customer aspirations.

Dua does not think those aspirations are going to change any time soon. “There is still a great pent-up demand that needs to be satisfied. The important thing to understand is that customers do not buy any one feature of a motorcycle. They buy a brand and expect it to deliver on promises like features, style, performance, fuel efficiency and reliability. The Splendor does all that and will continue to do so,” he says.

But Bajaj Auto sees a rapid shift away from “underperforming and overpriced 100cc motorcycles to 125cc plus motorcycles offering far greater value in both design and performance”. It is readying the launch an all new non-100cc motorcycle which the company expects to catalyse the shift.

This all new motorcycle platform will be based on the fuel efficient development of Bajaj’s DTS-i technology called DTS-Si, (digital twin spark swirl induction), for which a monthly capacity of 50,000 motorcycles is being established at Waluj. These numbers indicate that, by itself, this bike may not upset the Splendor applecart, but Hero Honda has a fight on its hands. It will be interesting to see how it responds.