Next Case: Spencer’s Tyre (Saturday). Group write-ups are expected to be in.

Friday (Tomorrow) : Extra Class in lieu of the class on 6/11

Time: 10.30 am to 11.15 am

BAJAJ AUTO CASE

I . DOMESTIC MARKET 2. EXPORT MARKET

3. Application of Environmental Factors, (You should examine the implications)

2. Application of the Marketing Mix Strategy (4Ps)

1. Different Orientations to the Market,

4. Application of Marketing Strategy Alternatives. •Market Penetration •Market Expansion•Product Development, Diversification Strategies) (At what stage did Bajaj Ltd. change from one strategy to the next)

Was there Synergy among the Mix Elements?

This is a case on:

1950’s-1980’s: GOVERNMENT POLICY OF EXCESSIVE REGULATION

BAJAJ AUTO’s EXPOSURE TO ENVIRONMENTAL FACTORS

•Marketing Implication Pent up Consumer need for Transportation

INDUSTRIAL DEVELOPMENT POLICY TO AVOID OVERCAPACITY• Regulations governing Product.

Licenses required for productionCapacity Restriction because of Capital Scarcity

• Regulations governing Technology,• Regulations governing Foreign Exchange. Restrictive Import Policies.

EFFECT OF INDUSTRIAL POLICY ON BAJAJ AUTO LTD.

1950-1956: Initial Imports of Scooters & 3-Wheelers from Piaggio (Italy), Vespa Brand1959: Bajaj obtained a License to Produce in India.1960: Technical Collaboration with Piaggio to Manufacture Vespa Brand in India. Plant set up in Akurdi (Pune).1960’s: Decade of Indigenization. Initial Assembly with parts from Piaggio. Local Components in Vespa scooter were only 26%.

Establishment of Dealer network in India.

1969 Government Policy Regulations restricted increase in production capacity.

Up till 1969 it was a SELLERS MARKET (for 22 years). Demand more than supply. Long Waiting lists, averaged 10 years 1950-1972.

BACKGROUND

What was Bajaj Auto’s Market Orientation during this period?Application of the Selling

Concept. It was a Selling Orientation.

(Take it or leave it attitude in a seller’s market).

DEMAND STATE: Demand outstripped capacity. It was a Protected seller’s market..

Protected market for BAL. Largest market share.

1971: New Government Regulations prohibited continuation of Bajaj-Piaggio Alliance.

What was BAL’s Market Orientation during this stage?

1980’s-1990’s Government Policy Changed.• Lifting of Restrictions.• Lifting of Manufacturing capacity constraints. • Second Plant set up in Waluj (Aurangabad). Production Operations in 2 shifts• Inflow of foreign technology + equity

Application of the Production Concept.

It was a Production Orientation.

SHIFT IN 1980’s

1990-1995 ECONOMY IN RECESSION• Recession of Indian economy in early 1990’s• Inflation occurred simultaneously. Inflation Rate = 13% average for these five years.• High Interest rates from Banks.• Consumers felt the pinch. Decline in Purchasing Power.

•Overcapacity in industry.•Market saturation. This was the result of the

Production Orientation.

1990’s DECADEMarket demand fell. 1991-1992 Decline in Domestic Demand by 5% (See pg. no)

1993: 1. MARKET TASTES: Consumer tastes were changing Value for money plus Visual appeal

2. ENTRY OF COMPETITORSCOMPETITION: 6 Competitors All had technical collaboration with foreign companies.

Competition from Japanese two-wheeler manufacturers.

What was Bajaj Auto’s Marketing Orientation at this stage?

Shift to the Customer Orientation. Application of the Marketing Concept.(Here we can apply the Characteristic Criteria of the Marketing Concept)

Changing trends …

Here we can apply the Characteristics of THE MARKETING CONCEPT

1. TARGET MARKET: First the company must identify and define the target market. No company can operate in all markets.

2. CUSTOMER NEEDS: What is the customer’s need? Customer oriented thinking require defining customer needs from the customer’s point of view

3. INTEGRATED MARKETING All departments work together to serve the customer’s interests. The various marketing functions must work together.

4. PROFITABILITY Profits through customer satisfaction.

These are the FOUR PILLARS OF THE MARKETING CONCEPT

Were these being fulfilled by BAL?

THE SOCIETAL MARKETING CONCEPT

IMPLICATIONS: …social and ethical considerations into marketing profits.

For Bajaj Auto: Legislation on Auto Emission Standards

To deliver customer needs/wants/interests more effectively and efficiently than competitors but in a way that enhances consumers and society well being.

Eventual Shift in 1990’s to:

Is there a Difference between Societal Marketing and Green Marketing?SOCIETAL MARKETING CONCEPT: A Product/Service must be beneficial to consumers as well as to society. EXAMPLE• Marketing of Tobacco Products, • New Drug Developments (Product)• Anti Polio Campaign (Service plus Idea)• Drunken Driving (Idea)

GREEN MARKETING: May involve Marketing of a Cause/Idea related to Society plus the Environment:EXAMPLE• Garbage Disposal (Littering)• Green Transportation Methods

THERE IS AN OVERLAP

ALL SOCIETAL MARKETING IS NOT GREEN MARKETING

ALL GREEN MARKETING IS SOCIETAL MARKETING

Comparing the Selling Concept and Marketing ConceptFor Bajaj Auto Ltd.

Factory Existingproducts

Selling andpromotion

Profits throughsales volume

Startingpoint Focus Means Ends

This is an application of the Selling Concept

Customer Delivered Customer Delivered ValueValue

Market Integratedmarketing

Profits throughcustomer

satisfactionCustomer

needs

This is an application of the Marketing Concept

BAL 1993

BAL 1980’s

Competitors

MarketingIntermediaries

Distributors

PublicsSuppliers

Factors Influencing a Company’s Factors Influencing a Company’s Marketing Marketing Strategy Strategy

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Marketing

organization

system Marke

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Place PriceTARGETCUSTOMERS

DemographicDemographiceconomiceconomic

environmentenvironment

Social/Social/CulturalCultural

environmentenvironment

Technical/Technical/physicalphysical

EnvironmentEnvironment(Licensing/ JVs)(Licensing/ JVs)

Political/Political/LegalLegal

environmentenvironment

CASE ANALYSIS

BAJAJ AUTO Ltd.

• Socio-Cultural • Economic Environment• Political/Legal : Licensing followed by Liberalization

(Successive Industrial Policy Changes).• Technology (Infusions through JVs)• Demographic Environment

Population sizeAge groupsIncome levelsEducational LevelsGrowth rate of populationRegional Distribution

MARKETSEGMENTS WERE

EMERGING

RURAL /URBANSEGMENTS

What were the Environmental Factors/ Challenges that the company had to encounter in formulating its Marketing Strategy ?

ScootersUrban Family

MotorcyclesRural demand

1993: BAL’s MARKETING STRATEGY

Conscious formulation of Marketing Strategy.

MARKETING MIX STRATEGY:Mix of Product Strategy, Pricing Strategy, Distribution and Advertising/Promotion Strategy.

Marketing objective: Increase sales to 1 million units.Maintain 50% market shareMarket leadership in all 2 wheeler subcategories (Apply Exhibit 7)

EVALUATING THE MARKETING MIX

PRICE•LIST PRICE•DISCOUNTS

•ALLOWANCES•PAYMENT PERIOD

•CREDIT TERMS

PROMOTION•ADVERTISING

•SALES PROMOTION•PERSONAL SELLING•PUBLIC RELATIONS

•DIRECT MARKETING

PLACE•CHANNELS•COVERAGE•LOCATIONS•INVENTORY•TRANSPORT

PRODUCT•PRODUCT VARIETY

•QUALITY•DESIGN

•FEATURES•BRAND NAME•PACKAGING

•SIZES•SERVICES

•WARRANTIES•RETURNS

Decisions to be taken by the Company on:

The Four The Four PsPs

Was there Synergyamong BAL’s Marketing

Mix elements ?

BAL’s PRODUCT STRATEGY (1992)• Product line Expansion: Full line of 2 and 3 wheelers to protect market share (12 models)• Emphasis on Product Improvement• Quality Improvement • Phasing out of old models. • Emphasis on Styling, features• Improved suspension• Better lighting• Improved electrical system• Electronic ignition• Fuel economy• Bajaj Scooter Upgrade program

To what extent did Bajaj Auto Implement the Marketing Concept?

Foreign Collaboration with Kawasaki

• Product Strategy change to 4 stroke engine• Use of fuel injection technology

• 330 Exclusive Dealers• 75 Private Transport Companies• Computerization of Distribution System. Linking of Dealers to BAL Family.• Spare Parts supply through Service/Dealer Network.• Extensive Distribution of Spare Parts.• 800 Service Centres• No Credit Policy for Dealers• Setting up of Regional Depots to improve Availability and reduce lead time 8 Depots• Dealer Satisfaction/Loyalty Competitive Advantage

DISTRIBUTION STRATEGY

This was a WEAKNESS

•Need to Maintain Brand Awareness and Brand Preference •TV Advertising 45% of Total Media Expenditure• Slice of Life Advertising. 45% Print Advertising• Emphasis in Print Ad on Technical features/Kawasaki Brand Name• Positioning of Product as an investment (Best Resale Value)• Cooperative advertising Matching Advt/Prom Expenses with Dealers 1: 1 for local press ads. All Dealer POP provided by BAL• Ads were developed in collaboration with Dealers

ADVERTISING/PROMOTION STRATEGY (1992)

Advertising as a % of Sales = (1% This was low to compete effectively)

•

• Doubling of Ad Expenditure from 1991-92 (Still only 1.2%)• Competitive Ad Spend: Competitors also spent 1% of Sales.

• Retail Price was increased by 7%• Manufacturer Margin 15%.• Dealers 4%• Reasonable Pricing, Low Cost Producer• 50% of Comparable Japanese Motorcycles• Product Emission regulations by Govt•Price premium 15%

PRICING STRATEGY

COMPETITORS (1992)Bajaj Auto: 46.5% (All 2 Wheelers)Others: 53.5%

2 wheelers Bajaj Kawasaki 3 wheelersKinetic: Scooters MopedsHero Motorcycles, MopedsLML Only scootersEscort Only MotorcyclesTVS Motorcycles, Mopeds

FOREIGN COLLABORATIONS:Bajaj-KawasakiKinetic-HondaHero-HondaLML-PiaggioEscorts-Suzuki

1. Should Bajaj Auto go for the Rural Market? Large Growing Market.

Population in Rural Areas = 74%. BAL’s Market Share (1992) = 60%.

Inference: Scope for Rural Market Penetration.

Here it is necessary to do a COST/BENEFIT ANALYSIS

3. Should Bajaj Auto Diversify into other consumer durables in the Domestic Market? : Fans, Geysers, Room Heaters.

What were the MARKETING STRATEGY ALTERNATIVES open to BAL? (1992)

2. Should Bajaj Auto go for Exports?

Bajaj Auto was losing Market Share to Competitors. (Decline in Domestic Demand)

MARKETING GROWTH

STRATEGIES

Sale

sSa

les

10105500Time (yearsTime (years)

MARKETING GROWTH STRATEGIES

THE STRATEGIC-PLANNING GAP

Desiredsales

Integrative growth BACKWARD/ FORWARD/ HORIZONTAL INTEGRATION

Intensive growthPRODUCT-MARKET GROWTH STRATEGIES

ExistingProducts

TheTheStrategic-Strategic-planningplanning

gapgap

DiversificationDiversification GrowthGrowthStrategyStrategy

ExpectedSales

FutureSales

New Products,New Markets

Two Wheelers

Three Intensive Growth Strategies: Apply Ansoff’s Product/Market Expansion Grid

4. Diversification2. MarketdevelopmentStrategy

Newmarkets

1. MarketpenetrationStrategy

Existingmarkets

ExistingProducts

3. Productdevelopment

NewProducts

Intensive

Growth

Strategies

How could BAL achieve Intensive Growth …..

PRODUCT LINE EXPANSION

BAL Three Wheelers

BAJAJ ELECTRICAL APPLIANCES Cooking Ovens

BAL StartedWith Two Wheelers

Related Technology Unrelated Technology

NEW MODELS STYLE,DESIGN IMPROVEMENTS

URBAN MARKET BAJAJ entry into

RURAL MARKET SEGMENT

PASSENGER CARS

EXPORT MARKETS

Diversification Strategies may be:• Concentric Diversification:

Same or RELATED TECHNOLOGY, Different products for the same market.

(Auto Product Line Extension)• Horizontal Diversification:

UNRELATED TECHNOLOGY, Different Products for the Same Consumer market.

• Conglomerate Diversification: Entirely DIFFERENT UNRELATED TECHNOLOGY, different

product for a DIFFERENT MARKET.Example: Market Diversification Strategy Wills Cigarettes. Diversification into:•Lifestyle Clothing,•Liquor, Beer, •Frozen Foods, Soft Drinks.

Note that Horizontal Diversification is different from Horizontal Integration.

WHAT IS AN SBU?-It is a single business/collection of businesses.Example:

-It has its own set of Competitors.-Own Strategic plan and Profit Performance

Establish Strategic Business units (SBUs)

• Assign resources to SBUs• Plan new business, downsize

older businesses

StrategicBusiness Units

SBU’s

AUTO UNIT2 Wheelers3 Wheelers

CarsPMU

FINANCEUNIT

PMU

ELECTRONICSOvens

HeatersLight Bulbs

PMU

Product line Extension

PRODUCT CATEGORY

PRODUCT SUB-CATEGORIES

BAJAJ AUTO Ltd SBU’sPMU 1 PMU 2 PMU 3

SBU 2: Three Wheelers

SBU 3: Passenger Cars

These 3 SBUs (Subcategories had different market growth rates).

HOW TO CLASSIFY BAJAJ AUTO’S SBU’S

SBU 1: Two Wheelers: 50cc Mopeds, 100 cc Motor Cycles, 150cc Scooters

ALL THESE will all normally comprise one SBU.

SBU 4: Bajaj Auto Finance

SBU 5: Bajaj Electronics

Bajaj Auto LtdCONSUMER PRODUCTS

• 2 Wheelers• 3 Wheelers• Cars• Accessories

EXAMPLE

BAL SBU 1

BALFINANCE • Auto FInance

BAL SBU 2

3 PMU’s (PRODUCT MARKET UNITS)

BAL EXPORTS • 2 Wheelers• 3 Wheelers

BAL SBU 3

BAJAJ AUTO Ltd.

ELECTRONICS • Ovens• Heaters

MARKETS

SBUs

CONSUMERMARKET

INDUSTRIAL/CORPORATEMARKET

EXPORTMARKET

GOVTMARKET

CONSUMERPRODUCTS 2 Wheelers3 WheelersCars

√ Yes √ Yes

FINANCE Auto Loans

√ELECTRONICSOvensHeatersLight Bulbs

√

EXAMPLE : BAL COMPANY SBU’S: PRODUCT PORTFOLIO MATRIX

SBU 1

SBU 2

SBU 3

WHAT IS AN SBU?- A single business/collection of businesses.- It has its own set of Competitors-Own Strategic plan and Profit Performance

?

THE PURPOSE OF IDENTIFYING SBU’S IS TO DEVELOP SEPARATE STRATEGIES FOR EACH SBU

•Which Businesses to Invest In?(The Investment Portfolio of a Company) Market Opportunity Analysis•Assessing Each Business for Resource AllocationHow Much to Allocate each Business Unit (SBU)?•Developing a Strategy/Game Plan for Each Business.Strategy for Achieving Long-term objectives.

EVALUATING THE SBU’SPRODUCT PORTFOLIO OF A

COMPANY

This involves identifying and defining the SBU’s (Strategic Business Units)

HOW?

BCG MATRIX

Applythe

CLASSIFYING SBU’S BY PROFIT POTENTIALUse of:•BCG MODEL (Growth-Share Matrix) (Boston Consulting Group Method) Growth versus Relative Market ShareRelative Market Share= Market Share /Share of Largest Competitor in the business 10%/ 70% - 0.14, 10%/ 30%=0.3

•GENERAL ELECTRIC MODEL (Market Attractiveness-Business Strength)

GE Model)

Can we apply the Boston Consulting Group Model to Bajaj Auto?Applying the Boston Consulting Group

Growth-Share Matrix

20%-20%-18%-18%-16%-16%-14%-14%-12%-12%-10%-10%- 8%-8%- 6%-6%- 4%-4%- 2%-2%- 00M

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