HERO VS HONDA Now it’s Hero vs. HondaAs Hero & Honda gear up for their Solo Rides in The Indian Market, Honda will be The Biggest Contender for Hero’s Numero uno PositionIssue Date - 21/04/2011 4 Ps

  India, for a very long time had been known as a market for scooters on the global charts, especially when Bajaj Priya and Super ruled the Indian roads. An executive from Bajaj Auto even said in the mid-70s that the company doesn’t require a marketing department, as the waiting period was running into several years. They would have perhaps even welcomed a person who could help them bring down the demand!

In fact, when the visionary Brijmohan Lall Munjal made the idea public of launching a four-stroke motorcycle for the

Indian market back in 1984, many industry experts laughed at the idea; assuming that the Indian consumer will reject the product outright. The perception changed in the next decade, some time after Hero Honda launched its CD 100, coupled with the immensely popular and unforgettable ‘Fill it Shut it Forget it’ campaign in 1985. In the years that followed, Hero Honda did the ‘Suzuki act’ in the motorcycle segment with follow-up launches like Sleek and CD 100 SS. The product went on to become a best-seller in the country and the critics had to simply stop laughing.

More to the present time, on August 26, 2010 at Taj Palace Hotel, New Delhi, the senior Munjal must have relived a few days from history, when SIAM’s 50th annual convention was in its last leg before the long day was called off. The theme of the session was crystal ball gazing for the Indian automotive industry, and the panel had eminent names of the industry like Anand Mahindra, Vice Chairman & MD, Mahindra & Mahindra, Abhay Firodia, Chairman, Force Motors, Ravi Kant, Vice Chairman, Tata Motors and Venu Srinivasan, CMD, TVS Motors. As the session was in its question and answer round, Madhur Bajaj, Vice Chairman, Bajaj Auto pointed out that it is somehow difficult to predict the future. As an example, Madhur forwarded the example that in the early 1980s, no one could have predicted that scooters will be replaced by motorcycles. Before Madhur could complete his statement, Abhay Firodia gesticulated towards the much respected Brijmohan Lall Munjal, Chairman, Hero Honda Motors (sitting next to Madhur Bajaj on the same table), giving a repartee, “He predicted it!” And the Munjals had also acted on the same in a brilliant manner, by forging one of the most successful JVs in Indian corporate history with Honda Motor Corporation in 1984.  

However, just four months after that SIAM convention, it was announced that Honda will sell its 26% stake in the JV at Rs.739.97/share and both the players will be gearing up for solo rides in the domestic circuit. After the announcement was made

public, Hero Honda has been working on its new brand identity, exploring new markets for exports and firming up plans to set up its R&D base in India over the past few months. The company has already roped in the globally renowned agency Wolff Olins to work on its new brand identity and positioning, as it will be very critical for its long-term success. For the less informed, Wolff Olins has worked for Airtel and Tata Docomo in the recent past. Moreover, Hero would now like to export to markets like Africa, Latin America et al, which the company was not able to pursue before due to its agreement with Honda. On the other hand, its arch rival Bajaj Auto exports close to one-third of the total production annually, and this leaves a huge window of opportunity for the market leader.

On the other end, by already establishing its presence with Honda Motorcycle and Scooters India (HMSI) in 1999, Honda has moved on to the top gear already by announcing its plan to catapult itself into the top three in the next two years and on top of the Indian two-wheeler industry by 2020. “In India, year 2011 marks the beginning of a new era for Honda. With new aggression, Honda has set up plans for rapid expansion to serve customers better. Our target is to be No. 1 in India in the next 10 years,” claims Naresh Rattan, Head of operations (Sales and Marketing), HMSI.

Clearly, Hero Honda, with its dominant position in the two-wheeler space is going to remain the market leader for many more years to come, but as mentioned, Honda is not in any hurry to climb onto the coveted position anytime soon. And one should not forget that the Japanese auto major has already established its presence in the scooters segment with over 43% market share against strong competitors like TVS Motors and Hero Honda, who follow the segment leader with a 21% and 16% market share respectively.

Going forward, HMSI has plans to expand its presence in the commuter segment with the launch of a 100cc product that will help it climb a few steps on the volumes front. 4Ps B&M presents to you the first ever comparative analysis between Hero & Honda and whether Honda can turn into the biggest competitor to Hero’s pole position.

Distributing it right?Just days after Hero Honda announced the exit of Honda from the JV; the Munjals called key dealers from across the country to share the way ahead with the dealer fraternity of Hero Honda. “There were many questions that were answered at the event. It was more of a confidence building session for the dealer community of Hero Honda as many dealers were not sure about the future after the split between the two partners,” said a person who was present at the event. Hero Honda shares a very strong bond with its dealer community and a lot of credit for that goes to Brijmohan Lall Munjal.

  It is

unquestionable that with the kind of reach Hero Honda has created in India, it will be tough for HMSI to match its stature in the short-run. Comparing with the 4,500 touch points of Hero Honda, HMSI’s 1,200 touch points are just like a drop in the ocean. “Hero Honda’s reach in the Tier-II and Tier-III cities will be the biggest challenge for Honda. It is not only about the reach as the kind of thought, time and effort that has gone in establishing such a wide distribution network is unmatchable,” says Pankaj Dubey, Country Head, Polaris India who has worked at Yamaha India in the past.

Equally aware of the challenge on that front, HMSI has already started building its sales network to take on the market leader. “In the upcoming FY 2011-12, we plan to add 300 outlets to take our total network strength to 1500 outlets,” adds Rattan. At a time when almost all the major competitors like Bajaj Auto and TVS Motors are trying to gain

ground in the rural parts of the country, the move by HMSI to make deeper in-roads is very logical. As of today, almost two-third of total sales of Honda comes from urban areas while the remaining belongs to semi-urban and rural areas. Rattan expects the break-up to reverse in the next 10 years as the company is planning to tap the potential in the Tier-II & Tier-III cities of India. However, as Hero would also like to penetrate further by the time HMSI tries to catch up, the former’s reach will stay as a long-term advantage in this high voltage battle.

But technology matters the most!Technology is one area where Hero will need to do its ground work. After its agreement with Honda expires in 2014, there is still no clarity on how the market leader would like to tackle its R&D matters. While one option of continuing its relations with Honda for technological needs is still open (as per the announcement by outgoing CEO of HMSI Shinji Aoyama who will be replaced by Keita Muramatsu), Hero would certainly be looking at a long-term solution.

“Technology is one area where Hero lags behind Honda as of now, but with the kind of cash bank that the company has, it should be able to overcome this hurdle,” expects P. S. Choudhary, Head – Marketing, LML. “Hero would look at attracting employees from Bajaj or TVS to strengthen its R&D base in India. But the strong relations with the vendors will work in favour of Hero Honda,” adds an ex-employee of Hero Honda who refused to be identified. For the uninitiated, Bajaj veteran T. M. Balaraman has already taken up a seat on the ship of Hero as the company prepares to strengthen its R&D base in India.

Products that could be ominous!HMSI also plans to launch a 100cc product that will attack Hero’s bread-and-butter commuter segment. One doesn’t require rocket science to understand HMSI’s high-level of desperation to enter the high-volume pulling segments as the CB Twister positioned it a notch above Splendor.

  As of today, HMSI is the fourth largest player in the Indian two-wheeler market with a 13.22% market share following names like TVS (15.1%), Bajaj (20.52%) and Hero Honda (44.56%). In fact, if we combine the market share of Bajaj and Hero Honda, the duo commands over 70% of the Indian market. And to snatch market share from the big daddies, HMSI will have to create a lot of buzz in the entry-level segment. “As long as HMSI doesn’t create any spectacular technology in its entry-level product, it will be at a loss in the short-run,” said an ex-employee who used to work at

Hero Honda’s engineering department. Product is certainly one area which is a challenge for HMSI for the short-run and for Hero in the long-run. Aware of the same, HMSI has

already hired an old Hero Honda veteran and a Munjal family loyalist Mukesh Malhotra as its new Vice President (Purchase). After over a decade with the country’s largest two-wheeler maker as the Senior GM (Strategic Sourcing), Malhotra could play an important role in identifying new vendors and expanding the supply base of the company. Hero will have to focus on innovating for the long-run as more than a decade old Splendor and Passion will not be able to cover too many more miles. The two models account for almost 60% of total sales as on date, and the company will need to move beyond them to be future ready.

Promotion is an art & a science to stay close to the consumer!If we look at the past records, Honda has so far been dealing with a capacity crunch and has hardly focused on its marketing activities. In fact, as per the last announcement, the company has a order backlog of 2.64 lakh units, which it plans to clear with the inauguration of its Tapukara plant. “Since many of our customers are waiting for our products, we are not doing too much marketing right now,” accepts Rattan.

Hero has a marketing budget that runs into millions and the company has established strong ties with the consumer over the past many years. Be it via its association with ICC for cricket or with MTV for Roadies, Hero has ensured that the two-wheeler maker always stays very close to the consumer; enabling it to reach high recall levels in the mind of the consumer. In fact, it will be pushing the accelerator even further once Pawan Munjal, MD, Hero Honda

showcases the new brand that will take the name of Honda out of the frame. But the Japanese counterpart (HMSI) should look at boosting its marketing activities in order to create a premium image. As of now, Honda has an opportunity to create a more premium image in minds of the consumer, but it will have to do much more compared to what it has done so far.

On the grounds of products and technology, Honda clearly has an upper hand, but when it comes to marketing and distribution, HMSI has a lot to learn from its partnership with Hero. “The competition has all the right to dream about reaching the top position but Hero’s dominance will continue in the Indian market for many more years to come,” explains Sunil Sachdeva, Chairman, Publicis Capital. It is still to be seen whether HMSI will be able to give a tough fight to Hero for the top slot in the Indian two-wheeler market or not, but thanks to its strong presence in the scooters segment, the company will be one of the toughest contenders for the throne by 2020. TVS Motors can emerge as a threat for HMSI in the short-run, but the limited presence in the premium segment with the Apache makes the TVS brand more vulnerable. Bajaj Auto has no presence in the scooters segment now, and that gives HMSI a huge gap to capitalise upon.

Meanwhile, on the motorcycle front, both players will have their task cut out as they

embark on their solo rides. Hero’s challenges are mainly on the product, R&D and branding front, but HMSI will have to be equally adept at handling distribution and promotional challenges. In that sense, when it comes to overtaking its former JV partner, ten years is quite a decent time to ask for.  

  “It is not Possible to use The Hero Brand Alone”Hero Honda has many milestones to its name in the world of Marketing. However, the task to establish a new brand will be the toughest one out of all so far

As soon as it was announced that Honda will exit its 26-year old JV with Hero, many market experts started making all sorts of guesses over the future of the Hero Honda brand in the Indian market. However, Munjals have already appointed Wolff Olins to work on the new branding and positioning strategy and it is believed that the company will be unveiling the new brand very shortly. Sunil Sachdeva, Chairman, Publicis Capital shares his point of view over the

new branding strategy of Hero and the challenges ahead of both the ex-partners with 4Ps B&M’s pawan chabra.

Now that Hero & Honda have parted ways, how do you see the road ahead for the Hero brand. Also, what should be the route that the company should take while finalising the branding and positioning strategy?It is a very important time in the life of brand Hero as it has recently seen its partner moving out of the joint venture. There is already a very powerful equity that the brand carries among the Indian consumer and as it will shortly announce its new branding and positioning strategy, I believe, there will be some prefix or suffix associated with the Hero brand. It is impossible that the company will go only with the Hero brand as a large chunk of its target audience connects the Hero brand to the maker of bicycles. Moreover, the new strategy will try and further connect to the Indian youth, which will be in-line with the efforts of Hero Honda from the past few years with campaigns like Dhak Dhak Go and Desh Ki Dhadkan. While the company has been getting most of its volumes from brands like Splendor and Passion, the company has spent a lot of money and effort in establishing more stylish and appealing brands like Hunk, Karizma and CBZ, as these brands help the company establish its presence among the Indian youth. The new branding will try and make Hero a young and dynamic brand in India.   But its partner, Honda has also announced very bullish plans for the Indian market. Do you believe that Honda, in its solo ride, will be able to make space in the already crowded Indian two-wheeler market?Honda, as a brand, carries a very high aspiration value – both in passenger cars and two-wheelers. Moreover, as the company has been a technology leader for the past many years, it enjoys a high status among the competitors as of now. But players like Bajaj and TVS have also spent the past many years establishing their R&D base in India and have already rolled some spectacular products from their factories. Indian counterparts are on the same page with players like Honda when it comes to the 100-110cc; but as we move

up the segments, Honda has an upper hand over the competition. Moreover, it is the distribution network that will be tough for Honda to replicate. Perhaps, Honda will have to work in phases in order to achieve its goal in the Indian market.

Honda has already announced its intentions to become the largest two-wheeler selling brand in India by 2020. Do you believe Honda will be able to topple Hero in this decade?It will be very tough for HMSI to run past Hero in the Indian market. There is no denying that Honda makes great products, distribution network and after-sales service is one area where it doesn’t come even near to the Indian manufacturers. It is a case similar to Maruti. Apart from the fact that Maruti makes great products due to its ties with Suzuki, it is the wide distribution network that attracts the huge sales in the country. The vast distribution network of Hero has been built in a span of three decades and it will be tough for HMSI to challenge it. While Hero will face some issues on the product development front, its distribution network will continue to be Hero’s biggest advantage against Honda. The competition has all the right to dream about reaching the top position, but Hero’s dominance will continue in the Indian market for many more years to come.

  “Growth will come from Rural Areas”Honda has already parted ways with Hero and is now all set to capture the consumer attention. However, the target of reaching the top slot

Hero and Honda have sailed in the same boat for 26 long years. While the partnership has been fruitful for both the partners as Hero Honda climbed on to become the market leader in 2001 and has retained the position till date, Honda is now all set to cover next lap on its own. With the strong mother brand and well-defined product plans, Honda plans to make it to the top three players in the next two years. In fact, the company has already made its intentions clear of reaching the status of market leader by year 2020. However,

it will have to tackle the intense competition and wide spread network of Hero if it wants to reach to the numero uno position. Moreover, the company also needs to focus on its marketing activities, as so far, it has been dealing with capacity crunch and has been carrying a huge order backlog on its books. But as of now, its second plant will be operational by the mid of this year. Thus, it is time for HMSI to press the accelerator and start marketing aggressively. Naresh Rattan, Operating Head (Sales & Marketing), Honda Motorcycle and Scooters India (HMSI) talks exclusively to 4Ps B&M’s Pawan Chabra on the future plans of the company and how it wants to reach to the top slot in the Indian two-wheeler space.

After exiting the JV agreement with Hero, what are the kind of future plans that HMSI has in mind? Do you have a target to become the market leader in the domestic market?In India, year 2011 marks beginning of a new era for Honda. With new aggression, Honda has set up plans for rapid expansion to serve customers better. Our target is to be No.1 in India in the next 10 years. By the end of year 2020, Honda will be the best selling brand in the Indian two-wheeler space.

Can you throw some light on your plans for the entry-level and premium motorcycle segment in the Indian market? How much potential do you see in both these segments respectively?Indian two-wheeler market is estimated at selling 12 million units on an annual basis currently. With rising incomes and aspirations across rural & urban India, both entry level and premium motorcycle segment will grow in future. The entry level segment contributes nearly 50% of motorcycle sales. Currently, we have CB Twister in 110cc motorcycle segment which is a niche product catering to urban demand. In future, HMSI may look at entering entry level motorcycle market. However, no time frame is fixed for the same. As for premium motorcycle segment, HMSI has unveiled its latest 250cc road-sport motorcycle recently. Starting mid-April, deliveries for CBR 250R will start from our 400 dealerships across India. CBR 250R is available in two options Standard and C-ABS.

  It has been reported that the company is very bullish on the Indian market in times to come. What is the strength of your dealership network and what is the expansion plan for the same?Currently our

sales network stands at 1200 outlets. The figure quoted includes our 400 dealers and 400 sub-dealers/branches with an additional 400 Authorized Service Centers (ASCs). In the upcoming FY 2011-12, we plan to take add 300 outlets to take our total network strength to 1500 outlets.

HMSI has been a very strong player in the Scooters segment. In fact, the company

recreated this segment in India with products like Activa and Eterno. How do you see the road ahead for this segment in India and what are the kind of plans your have in mind for the same?In April-Feb period of FY 2010-11 Automatic Scooters (ATSC) segment contributed nearly 17% to overall two-wheeler industry sales. In the coming FY 2011-12, we expect ATSC segment growth to continue. With 43% market share in ATSC segment, HMSI currently enjoys No. 1 position. We will strengthen our lead in scooter segment by meeting customer requirement through new products in future too.

Considering the global stature of Honda brand in the two-wheeler market, the company has not been able to meet the actual demand due to the supply constraints. Can you throw some light on your capacity capacity base and the expansion plan for the same?In FY2010-11, HMSI is producing at peak production capacity of 16.5 lakh units from its Manesar plant. To meet the existing customer demand, HMSI’s upcoming second plant at Tapukara, Rajasthan will start operations from early second half of 2011. It will have annual production capacity of six lakh units in Phase-I, taking the total annual production capacity to 22 lakh units.

Can you share the foundations on which the marketing strategy of HMSI has been based so far, and will there be any change in the same as the company will become all the more aggressive in India?HMSI is a customer oriented company. We believe in our products which are developed to meet the demands of Indian customers. We believe, customers will promote our products and their quality by strong and positive word-of-mouth publicity. Currently, since many customers are waiting for our products, we are not doing too much marketing right now. However, we are focusing on our core commitment to special safety and fun activities across the country.

Consumers from rural India have become an important pillar in the strategy of almost all the two-wheeler makers in India. What is the estimated current contribution from rural India in your overall sales and how do you see the equation between rural and urban India changing in timesto come for HMSI?In FY 2010-11, our total domestic sales is an estimated 15.5 lakh units. Of this two-third is from urban areas and one-third comes from semi-urban and rural areas. In the next 10 years, a large part of the growth will come from semi-urban and rural areas and this break-up will reverse.