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Bajaj Auto Ltd.

Bajaj Auto Ltd.

Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 1 of 24 Question Paper Integrated Case Studies – I (MB371) : October 2007 Case Study (100 Marks) • • • This section consists of questions with serial number 1 – 7. Answer all questions. Marks are indicated against each question. Case Study Read the case carefully and answer the following questions: 1. “During the 1980s, BAL was the undisputed scooter king. Examine the factors that, according to you, contributed to the near iconic status of the Bajaj/Chetak brand? (16 marks) ; Answer ; “By early 2000s BAL lost its title of India’s largest two-wheeler company. ” Was BAL unprepared for the challenges particularly with respect to consumer satisfaction, technological innovation, competition etc.? Justify. (15 marks) ; Answer ; “By early 1990s it was clear that BAL had no future in the scooters segment. ” a. Broadly explain the product life cycle of Chetak. b.

Analyze the strategies BAL adopted to extend the life cycle of its scooters, in the changed competitive scenario. (7 + 7 = 14 marks) ; Answer ; “While the new launches helped the company offer a wider range of two-wheelers to its customers, they also helped it to refresh its image. ” Assess the image makeover efforts of BAL. (10 marks) ; Answer ; 5. “In the early 2000s, with new motorcycle launches in every segment, BAL’s product portfolio changed dramatically. ” Evaluate the overall product portfolio of BAL in the two-wheeler segment, 1970 onwards. 15 marks) ; Answer ; “In 1990s the popularity of geared scooters began to wane while that of motorcycles soared. ” Discuss the economic, social and cultural factors that influenced the Indian two-wheeler market, post liberalization. (15 marks) ; Answer ; “Though the motorcycle had become the favorite two-wheeler of the Indian customers, most analysts did not expect the demand for scooters to disappear. ” In this light, a. What is the future outlook for BAL? 2. 3. 4. 6. 7. b. What are the prospects for two-wheeler industry in India? (9 + 6 = 15 marks) ; Answer ; Bajaj Auto Ltd. Overtaken in the Indian Scooter Market [1] “Like Volkswagen Beetle, the product (Bajaj Chetak) had lost its relevance. ” – Rajiv Bajaj, MD, Bajaj Auto Ltd. , in January 2006. “The scooter segment in India is over one million units and the segment has been witnessing an impressive growth for the past few months. Further, there is a huge untapped segment of women customers, which offers [2] immense growth potential. ” – Pawan Munjal, MD, Hero Honda Motors Ltd. , in January 2006. [3] “Fact is, Bajaj was slow in reading the shift from scooters to motorcycles. – An article in Business Today, in 2001. INTRODUCTION Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 2 of 24 In January 2006, Bajaj Auto Limited (BAL), a major Indian manufacturer of two- and three-wheelers, [4] announced that it had stopped production of Bajaj Chetak, its flagship scooter model. The Chetak, a geared scooter, had reigned over the Indian two-wheeler market in the late 1970s to early 1990s and had come to occupy a near-iconic status. According to Rajiv Bajaj Rajiv), managing director, BAL, the company had produced about 10 million Chetak scooters before the model was discontinued. In the mid-1940s, BAL started as an importer of two- and three-wheelers. In the early 1960s, BAL, in [5] collaboration with Piaggio , started manufacturing Vespa brand scooters at its plant near Pune, Maharashtra. With its collaboration with Piaggio coming to an end in the early 1970s, BAL started manufacturing scooters under the Bajaj brand. The Chetak, BAL’s first scooter model under the Bajaj brand, was introduced in 1972.

In the 1970s and 1980s, scooters dominated the Indian two-wheeler market. Most middle-class Indians preferred scooters because of their durability, low maintenance costs, and versatility, and the Bajaj Chetak name became synonymous with scooters. At that time, the motorcycles available in India were heavier and not as fuel efficient as scooters. They were also costlier. In the late 1990s, the Indian two-wheeler market witnessed a shift in consumer preferences. The popularity of geared scooters began to wane while that of motorcycles soared.

There were various reasons for the shift – India was undergoing a demographic change, with the proportion of younger people in the population growing significantly; the economy was growing, which increased the disposable incomes of the middle class; also, many newer models of motorcycles, with improved designs and modern technology had become available in the market. While these changes were taking place in the market, the features of scooters, especially those of the Bajaj Chetak, remained essentially unchanged.

Consequently, by the early 2000s, motorcycle sales surpassed [6] that of scooters and BAL lost its title of India’s largest two-wheeler company to Hero Honda . Scooters were BAL’s main products, and when market preferences shifted to motorcycles, the company was faced with declining sales and revenues. In an attempt to recapture market share, BAL decided to reorient its business, launching a series of new motorcycle models, which halted the downward trend in sales. It did not want to give up on scooters either. It launched new scooter models and upgraded existing ones.

However, with [7] scooters, the introduction and subsequent popularity of Honda Motorcycle and Scooter India (HMSI) [8] especially the Activa, a gearless scooter, BAL lost its dominance over the Indian scooter market as well. In 2005-06, scooter sales in the Indian market were around one million units annually, and consisted predominantly of gearless scooters. Even as it phased out the Bajaj Chetak, BAL was making efforts to regain market share in the scooter market. In early 2006, BAL announced that it would launch two new models of gearless scooters in 2006-07.

However, with new scooter launches from Hero Honda and Kinetic Motor [9] Company Ltd. , analysts felt that it would be an uphill task for BAL to once again become the largest scooter manufacturer in India. BACKGROUND NOTE The Bajaj group was founded in 1926 by Jamnalal Bajaj (Jamnalal) (Refer Exhibit I for the companies in the Bajaj group as of 2005). In 1945, Kamalnayan Bajaj, Jamnalal’s son, set up Bachraj Trading Corporation Ltd. (BTCL), a trading company, to import and sell two- and three- wheelers. This business continued till 1959.

In 1959, the company secured a license from the Government of India (GoI) to manufacture two- and threewheelers. In 1960, BTCL was renamed Bajaj Auto Ltd. (BAL) and the company went public. The same year, it entered into a technical collaboration with Piaggio for the manufacture of scooters. It started the production of scooters in 1961, and three-wheelers in 1962. Until 1971, the two-wheelers were sold under the Vespa brand. In 1971, the agreement with Piaggio ended and the company began selling scooters under the Bajaj brand. 10] , a geared scooter with a two-stroke engine, was introduced (Refer Exhibit II for a In 1972, the Bajaj Chetak photograph of the Bajaj Chetak). In 1975, BAL entered into a joint venture with Western Maharashtra [11] Development Corporation (WMDC) . The JV was called Maharashtra Scooters Limited (MSL). BAL held a [12] 24% stake and WMDC a 27% stake in the JV, with the remaining 49% being held by private investors. BAL marketed the two-wheelers manufactured by MSL under the Priya brand. This JV was the result of the [13] of the GoI. echnology transfer policy BAL introduced the Bajaj Super, another geared scooter, in 1976. In 1980, Bajaj America Inc. was set up as a subsidiary of BAL. Over the years, BAL became one of the lowest-cost manufacturers of scooters not only in India, but also globally. Although BAL’s flagship scooter models – the Chetak and the Super – were not very stylish, they Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 3 of 24 compensated for this lack of style with their sturdiness of build and ease of maintenance. 14] In 1986, BAL entered into a technical partnership with Kawasaki Heavy Industries of Japan to produce motorcycles, launching the first model, the Kawasaki-Bajaj KB100, in the same year. Also, the company developed an 80 cc moped on its own and marketed it as the Bajaj M80. In 1990, the Bajaj Sunny was introduced in the small scooter or scooterette category. The Bajaj Classic, yet another geared scooter model, was introduced in 1994. Two motorcycle models – the Bajaj Boxer and the Bajaj Caliber — were launched in 1997 and 1998 respectively. Two scooter models, the Legend and the Spirit, were also launched in this period.

While the Bajaj Legend was India’s first four-stroke scooter (geared), the Spirit was a gearless scooterette. In 1998, BAL entered into a tie-up [15] , an Italian company, in an effort to improve its design capabilities. Subsequently, more stylish with Cagiva versions of the Chetak, the Super, and the Classic were launched. In 1999, the company launched the Bravo, a geared scooter. In 2000, BAL launched the Saffire, a gearless scooter with a four-stroke engine and self-start. In 2001, it introduced the Pulsar (in 150 cc and 180 cc engine capacities) and the Eliminator (175 cc engine capacity).

Both these motorcycles were priced higher than the existing models and targeted the premium segment. In 2003, BAL [16] in its Pulsar models. introduced Digital Twin Spark Ignition (DTSi) technology In 2004, BAL created a new logo and brandline in a bid to renew its brand identity. The new logo was designed to symbolize confidence and excitement (Refer Exhibit III for the logo). In 2005, the Saffire was relaunched as the Wave, with a new engine with DTSi technology. Two more motorcycles, the Avenger and the Discover, were also introduced the same year.

In early 2006, BAL launched the Platina, a 100cc motorcycle. As of June 2006, the Indian two-wheeler industry was the second largest in the world, trailing behind only China, and estimated to be around 7. 5 million units in sales. BAL sold around two million two-wheelers in 2005[17] . 06 BAL AND THE INDIAN TWO-WHEELER MARKET Between the mid-1950s and 1980s, the Indian industry operated under what was popularly termed the “License [18] Raj” . During this period, entities that wanted to produce two-wheelers were required to secure licenses from the GoI. The production capacity was also determined by the GoI.

The domestic market was protected from foreign competition with the GoI restricting direct import of completely built vehicles by imposing quantitative restrictions as well as high tariffs on them. In the 1950s, there was only one scooter manufacturer in India – Automobile Products of India (API), which [19] under license from Italystarted manufacturing scooters and mopeds in 1955. It manufactured the Lambretta based Innocenti Ltd. During this period, there were also motorcycle manufacturers like Enfield India Ltd. [21] [20] , Ideal Jawa Ltd. (Jawa), and Escorts Ltd. Escorts) (Refer Exhibit IV for a list of companies (Enfield) operating during 1955-80). Enfield initially imported the Bullet, a 350 cc motorcycle, from the UK. It started manufacturing it in India in 1956. Bangalore-based Jawa sold the Yezdi brand of motorcycles, and Escorts sold the Rajdoot, a 175 cc motorcycle which was popular in rural areas. In the 1960s, the GoI encouraged local companies to enter into collaborations with foreign firms so that they could gain technological expertise. BAL started manufacturing Vespa scooters in 1961 in collaboration with Piaggio.

In the early 1970s, with BAL starting to manufacture scooters under the Bajaj brand, it slowly overtook API in sales, as the latter shifted toward the production of three-wheelers. Through the 1970s, scooters became very popular and were preferred to motorcycles for several reasons. First, scooters were cheaper (by around 30%) than motorcycles. They were more economical to run as well as to maintain. Also, owing to their bulk and weight, the motorcycles available at that time were not suitable for everyone, and one had to have above average strength to handle them. 22] . This growth was partly During the 1970s, two-wheeler sales recorded high growth rates (around 15% p. a) attributed to the inefficient public transport systems in the country’s towns and cities, which led to a greater demand for personal transport. With only a small section of the population able to afford cars (the supply of which, as well as the choices available, was also limited due to the License Raj), two-wheelers offered the only practical personal transport option for the masses.

Also, with fuel costs rising steeply during the period, even the people who owned cars purchased two-wheelers, which they usually used for short trips and errands. Two of BAL’s most successful scooter models (the Chetak and the Super) were launched in the 1970s. During this period, the two-wheeler market, like the markets for most other consumer goods in India then, was completely a seller’s market. The demand for two-wheelers far outstripped supply, a situation which persisted until the mid-1980s. As a result, customers typically had to wait for a couple of years for their vehicles to be

Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 4 of 24 delivered. At the peak of its popularity, the waiting period for the Bajaj Chetak was anywhere between 10 and 12 years. As Rahul reminisced, “In North India, for two or three decades, marriages did not happen without a [24] [23] item. ” Chetak. It was a compulsory dowry Through the 1970s and 1980s, Indian industry was restricted and controlled by the GoI through legislations such [26] [25] and FERA .

Even though the GoI’s thrust on setting up manufacturing units in India as the MRTP Act paved the way for the initial development of the auto industry, the “closed market” resulted in a lack of technological innovation. Although Indian two-wheeler firms had entered into technical collaborations in the 1960s, the foreign firms were not always very keen on parting with their latest technologies/designs. Since Indian firms invested next to nothing on R&D, they were entirely dependent on their foreign partners for technology.

Owing to their obsolete technology and design, motorcycles manufactured in India during that period were not fuel-efficient. As a result, sales were very low and this segment stagnated through the 1970s. Compared to motorcycles, the scooter and moped segments were technologically more self-sufficient and [28] [27] and Kinetic Engineering Limited (Kinetic) . attracted new entrants like Scooters India Limited (SIL) The GoI made several policy changes in the 1970s and early 1980s to give an impetus to the auto industry. In 1980, the focus was on modernization, encouraging technology upgradation and promoting healthy ompetition in the domestic market. As part of these policy initiatives, the GoI allowed foreign auto companies, mostly from Japan, to enter the Indian market through joint ventures with Indian companies. The foreign automobile manufacturers too were eager to grab the opportunity of exploiting an underserved market. “When the Japanese players entered the Indian market, the only route available then was through a JV and they wanted to take on the [29] said an analyst at Karvy market completely which was dull and unexplored completely at that point of time,” [30] Stock Broking . 31] [32] [33] Japanese companies like Honda Motor Co. Ltd. , (Honda) , Suzuki and Yamaha started their [35] [34] (Hero), TVS , operations in India through joint ventures with Indian companies like Hero Cycles Ltd Escorts, etc. All these joint ventures were in the motorcycle segment. The foreign firms came with the latest technology and efficient production systems, which dramatically improved the quality of the motorcycles available in the market. Soon, the JV companies started introducing more new models with contemporary technology, styling, and greater fuel efficiency. 36] In the scooter segment, LML (India) Ltd. entered into a joint venture with Piaggio in 1982 to produce the Vespa in India. The LML Vespa, as it was called, sold well in the 1980s and 1990s and came second to the Chetak in sales in that period. In 1984, Kinetic tied up with Honda and introduced new models of scooters with features like self-start and automatic gear transmission. The Kinetic Honda scooter proved to be popular with women and the elderly because of its convenience. However, BAL scooters continued to dominate the two-wheeler market through the 1980s and early 1990s.

The Bajaj Chetak and the Bajaj Super, with their value-for-money appeal, durability, and versatility, were the preferred two-wheelers for middle class Indians. They were also cheaper to own and maintain, and spare parts too were easily available. The ‘Hamara Bajaj’ ad campaign, launched in the early 1990s, also contributed to strengthening the Bajaj brand. The advertisements, which prominently featured the Chetak, were successful in positioning the Bajaj brand as a reliable and trustworthy one. THE TURNING POINT The early 1990s saw a recession in the Indian two-wheeler market.

Overall sales of two-wheelers declined by [37] . This period also saw a steep rise in fuel prices, which resulted in consumers 15% in 1991 and 8% in 1992 placing greater emphasis on fuel efficiency when purchasing a new two wheeler. However, even as late as 1997-98, the scooter segment was the largest sub-segment in the two-wheeler market. Scooters, with 42% of the market (in terms of unit sales), were followed by motorcycles (37%), and mopeds [38] Within the scooter segment, BAL and MSL together had a 61% market share followed by LML (21%). 39] [40] (24%), Kinetic Honda (9%), and TVS Suzuki (2%). However, in the late 1990s, the pattern of demand changed and motorcycles became the fastest growing segment of the two-wheeler market (Refer Exhibit V for the shares of scooters, motorcycles, and mopeds between 1996 and 2005). Motorcycles were no longer perceived as accident-prone, non-utilitarian, and bulky; instead, people started buying them for their fuel-efficiency, power, and later, even for their style. Also, the Indian economy was beginning to grow rapidly.

This growth was palpable even in small towns and rural areas where a number of households saw their incomes rise, opening up a new market for two-wheelers. In Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 5 of 24 these regions, motorcycles were preferred to scooters because of poor road conditions. Motorcycles, with better ground clearance, stronger suspensions, and larger wheel bases, performed well on village roads and, therefore, were more practical than scooters.

Their greater fuel economy was an added bonus. One customer explained, “… it [motorcycle] is economical in the long run, as the average [mileage] of bikes [motorcycles] is more than 60 kmpl as compared to about 40 kmpl of any scooter. Further it would fetch good market value even if I decide to [41] sell it in future. ” At the same time, demographic changes too were taking place in India, with the proportion of younger people in the overall population increasing.

Motorcycles, with their improved styling and power attracted young men more than the staid products sold by BAL and other scooter manufacturers. Further, lower interest rates on vehicle [42] loans made motorcycles more affordable. Motorcycles were also fast replacing scooters as the preferred dowry item. As one consumer said, “I want to give the costliest bike [motorcycle] to my son-in-law in the [43] marriage of my daughter. ” The sales of motorcycles surpassed that of scooters for the first time in 1999 (Refer Table I for two-wheeler sales between 1996 and 2000).

Hero Honda became the new market leader with its Splendor, a 100 cc motorcycle, proving to be a blockbuster product. The company’s communication campaign – “Fill it, shut it, forget it” – highlighted the fuel efficiency and the low maintenance costs of the model. When asked about the demand shift, Sanjiv Bajaj, executive director, BAL, said, “With consumer preference changing from scooters to motorcycles we were unable to hold onto the number one position and had to relinquish it to a company (Hero Honda) that [44] had only motorcycles in its product portfolio. Table I Two-Wheeler Sales in India between 1996 and 2000 (Units) FY’96 FY’97 FY’98 FY’99 FY 2000 Scooters 1,222,649 1,301,051 1,262,699 1,325,868 1,253,969 Motorcycles 809,527 978,682 1,131,314 1,395,657 1,796,734 Mopeds 626,112 683,756 648,842 681,902 726,075 Total two2,658,288 2,963,489 3,042,855 3,403,427 3,776,778 wheelers Source: www. indiainfoline. com. In 1999-2000, scooter sales fell by around 75,000 units, while motorcycle sales increased by more than 400,000 units. This shift in demand took its toll on BAL, the market leader till then. “The bottom fell out of the scooter market and we were the scooter king.

We were part of that huge fall. We had volumes falling 40% year-on-year. When scooters were 80% of our total business, there was a lot of pressure. If you saw analyst reports in the [45] said Sanjiv. market, many of them were predicting the end of Bajaj Auto,” Further, a new set of emission norms – Bharat Stage II (equivalent to Euro II emission norms) – for petrol two[46] came into effect in 2000 (Refer Exhibit VI for vehicular emission norms in India). With this stroke engines development, scooters with two-stroke engines fell out of favor. This was a blow to BAL, which primarily sold two-wheelers with two-stroke engines.

BAL FIGHTS BACK Following the ‘Motorcycle Way’ By the end of FY 2000, the numbers clearly indicated that consumer preference had shifted firmly toward motorcycles with four-stroke engines, and industry watchers predicted that this trend would continue. Geared scooter sales registered a fall of 41% in 2001. “The market has shifted to motorcycles. We will have to follow [47] the trend,” said Venu Srinivasan, chairman, TVS. BAL realized, though rather belatedly, that it would have to cater to the changing consumer tastes and preferences, if it had to survive.

Rajiv, who later agreed that BAL had been slow in reading the demand pattern, said, “See, the company failed to anticipate the consumer behavior. We all thought that we are going in the right direction, but we were not. We are to be blamed for our market dominance slipping because we did not see it coming. How else will you explain it – our research or market experience should have shown in advance that the [48] market is moving toward motorcycles. ” In an attempt to regain market share, BAL increased its production of motorcycles by 67. 6% in 2001 even as the production of geared scooters fell by 44%.

By 2001, the company was manufacturing as many motorcycles as geared scooters (Refer Table II for the production details). Table II Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 6 of 24 Production Details of BAL (2000-2001) Category FY 2001 FY 2000 Growth (%) Geared Scooters 426,334 757,714 -43. 7 Un-geared Scooters 78,892 69,726 13. 1 Mopeds/Stepthroughs 121,238 176,961 -31. 5 Motorcycles 427,088 254,847 67. 6 Total two-wheelers 1,053,552 1,259,248 -16. 3 Source: www. myiris. com.

In the early 2000s, with new motorcycle launches in every segment, covering each price point, BAL’s product portfolio changed dramatically. While improved versions of the Boxer and the Caliber motorcycles were launched in the executive segment, the Pulsar (175 cc) was launched in the premium segment and the Eliminator [49] segment. (175 cc) was launched in the cruiser While the new launches helped the company offer a wider range of two-wheelers to its customers, they also helped it to refresh its image. “This is also part of our changing image – it is part of our looking stylish with [50] said Rajiv. ore choice and high performing vehicles,” With the Chetak as its flagship brand, BAL was widely perceived as a “scooter company”. With the overall scooter market facing a slowdown due to the growing popularity of motorcycles, the overwhelming image of a scooter company that had once been nurtured through the “Hamara Bajaj” ad campaign in the 1990s, seemed to be working against the company. As Nitin Kochar (Kochar), senior manager, marketing, BAL, said “So while Bajaj built a trusted and reliable image for itself, it eventually created a perception of being conservative and [51] middle-aged, not youthful. Therefore, the new launches were complemented with a new communication campaign to inject vibrancy into the Bajaj brand. BAL came up with a new series of commercials at the end of 2001. The advertisements showed ‘slice of life’ situations of “new age” India. Significantly, instead of geared scooters, the new commercials mainly showcased motorcycles, as a part of a conscious effort to change BAL’s image as a scooter manufacturer. [52] “There was a need to drive in motorcycle imagery and get away from the scooter imagery,” said Kochar.

However, with the company focusing on motorcycles in its new product initiatives as well as communication campaigns, customers who still preferred scooters to motorcycles, were forced to look to its competitors for new and exciting models of scooters. Trying to Resurrect Scooter Sales Even as it tried to increase its presence in the growing motorcycle segment, BAL attempted to check the decline in scooter sales. One of the reasons for the growing preference for motorcycles over scooters was that the price differential between scooters and motorcycles had narrowed. What happened in our traditional markets was that [53] said R. L. Ravichandran (Ravichandran), with rising scooter prices, people preferred to buy motorcycles,” vice-president, business development, BAL. Therefore, in 2001, BAL lowered the prices of the Chetak and the Super by Rs. 5,000 to Rs. 8,000, and at the same time, removed some accessories like spare wheel, luggage box, etc. , from the base models. The price of the base model of the Chetak was reduced from Rs. 28,500 to around Rs. [54] 23,500 (ex-showroom) .

While geared scooter sales were falling, the gearless scooter segment had been growing at 25% per annum in the late 1990s. Gearless scooters were seen as combining the style of a motorcycle with the versatility of a regular scooter. The purchasers of gearless scooters were mainly teenagers, women, and older people. In 1999-2000, [55] In order to capture a larger share of the gearless scooter BAL had a market share of 20% in this segment. market, BAL introduced a new gearless scooter with a four-stroke engine in 2000.

The Saffire, as it was called, was jointly developed with Tokyo R&D, a Japanese design firm. During this period, BAL also launched the Sunny Spice, an upgraded version of the Sunny. Since customers were also buying motorcycles because of their better mileage, BAL worked to improve the mileage of its scooters. In 2002, the Legend NXT 2, a four-stroke geared scooter that was claimed to offer a motorcycle-like mileage of 60-70 kmpl was launched. However, customer response to the new scooter was tepid. Among BAL’s scooters, the Chetak continued to be the largest selling model.

A sales manager at one of the Bajaj showrooms pointed out, “…the Chetak models are still preferred by the lower middle class due to low [56] price and (low) maintenance cost. ” To add to BAL’s problems, HMSI’s Activa (102 cc), a four-stroke gearless scooter, which was launched in 2001, [57] units of the Activa within just three months of its launch. The became a major hit. HMSI sold about 10,100 Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 7 of 24 Activa went on to dominate the gearless scooter market. 58] Anang Dev Jena, business head, Synovate India , later commented, “The geared scooters have been available in similar styling for years, but there was no excitement around scooters till the gearless Honda Activa came to [59] Kinetic launched the Nova, another gearless scooter, in 2002, the market with all-new modern styling. ” which also became quite popular (Refer Exhibit VII for the scooter models in the Indian market). In April 2003, TVS launched the Scooty Pep (with a 75cc, four-stroke engine), an upgraded version of its Scooty, with better styling, technology, and storage capacity.

It was an instant success. Within a year of its launch, [60] 189,261 units of the Scooty Pep were sold. Although its thrust was now on motorcycles, BAL planned to revive scooter sales by introducing more stylish products. “We are currently developing new scooter models to be launched over the coming one to two years (2004 and 2005). These products will have entirely new features, styling, and identity as compared to the existing products available in India. We hope to revive interest in the scooters market in India with these [61] said Sanjiv. nnovative new products,” In 2004, the Chetak was upgraded with a new four-stroke, 125 cc engine, with a promise of greater comfort, superior performance, and better mileage (70 kmpl). It also incorporated minor style changes. Further, it was repositioned as an easy-gear scooter targeting customers in smaller towns – markets where scooters were traditionally accepted. “We introduced a new gear system in the Chetak last month called the ‘wondergear’, in which no gear shifting is required. Cosmetic/styling changes have also been made in the headlamp, seat, and the [62] said Ravichandran. ail lamp,” New ad campaigns were also launched to brush up the Chetak’s image. The new ads moved away from the family man imagery; instead they focused on individuality and strength of character. “If you put it in Hindu [63] [64] terms, the Chetak is the Ram persona…one who believes and lives by certain values,” said Aniruddha Banerjee, associate vice president of Chaitra Leo Burnett (CLB), the ad agency that created the new Bajaj Chetak ads. However, in spite of BAL’s efforts, Chetak sales did not show any substantial increase.

While BAL’s motorcycles were becoming more popular, the competition in the scooter market continued to be intense, and its scooters lagged behind in sales. Therefore, BAL was forced to phase out several models including the Spirit, the Sunny Spice, the Legend NXT 2, and the Bravo. The Saffire, reportedly, suffered from several technical problems. Its sales too failed to pick up. It was replaced by the Wave in 2005. THE FALL OF AN ICON In January 2006, BAL announced that it had stopped production of the Chetak. With this announcement, BAL closed a major chapter in its history.

Rajiv said, “It is a history I would like to forget. My company has lived too [65] According to company long on nostalgia…holding on to anything from the past is a sign of weakness. ” sources, the decision to phase out the Chetak was taken so that the company could upgrade its scooter portfolio and regain the title of India’s largest scooter manufacturer. Some analysts were of the opinion that the Chetak, the flagship scooter model of BAL for over two decades, had to be phased out because BAL had neglected it in terms of design, technology, and innovation. The fact that BAL had been he undisputed leader in the Indian two-wheeler market could have led to a sense of complacency at the company, they said. Though initially (i. e. , in the 1970s and 1980s), reliable and low-maintenance vehicles like the Chetak were in demand, BAL failed to keep up with changing customer needs like better fuel economy, style, comfort, etc. “The consumer has given up on the product. Except minor tinkering, it (Chetak) had remained unchanged for more than 30 years. But then, that is what consumers wanted, a strong, reliable vehicle [66] said Rajiv. for the family.

They used to call it the car on two wheels,” [67] With the phasing out of the Chetak, BAL had just one scooter model, the Wave , while at the same time it had several successful models in the motorcycle segment. This was in sharp contrast to the situation in the 1980s, when BAL was the undisputed ‘scooter king’. By 2005-06, HMSI, with three scooter models, was the leader in the scooter segment and had captured close to 50% market share. OUTLOOK The late 1990s saw the popularity of scooters wane and motorcycles emerge as the new favorites in the Indian two-wheeler market.

It was believed that the dramatic shift happened because players like BAL did not pay sufficient attention to design, R, and customer satisfaction. “The decline of the market for scooters was directly related to neglect of this segment over decades vis-a-vis critical benefits (mileage), contemporary technology, and non-stop excitement of launch of newer and newer models offered on the motorcycles [69] [68] said Francis Xavier, managing director, Francis Kanoi Marketing Planning Services . BAL, platform,” Suggested Answers with Examiner’s Feedback

Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 8 of 24 however, shifted focus to motorcycles and was proving to be a tough competitor to Hero Honda. As of mid2006, BAL’s entry level motorcycles as well as premium motorcycles were doing well in the market. Even though geared scooters had fallen out of favor, the demand for gearless scooters was set to rise. The sales of gearless scooters were increasing by 20% every year on an average since 2003 as a result of the introduction of new models with better technology and trendy styling.

In January 2006, Hero Honda launched the Pleasure, a gearless scooter, mainly targeted at women. The [70] It company planned to sell the Pleasure through “Just4her” – a chain of exclusive showrooms for women. aimed to capture 10% of the scooter market within a year. In March 2006, Chongqing Lifan, one of China’s largest two-wheeler manufacturers, announced its plans to set up a factory in India to manufacture a range of scooters and motorcycles for the Indian market.

Earlier, the [71] company, along with some other Chinese players, had attempted to sell imported (from China) motorcycles in India. However, at that time Indian consumers had not proved very receptive to the products. In April 2006, Kinetic launched the Blaze, a 165cc gearless scooter, which was to be the first of seven models [73] [72] from the Italjet range . Kinetic planned to launch the remaining six models in a phased manner. Also, in early 2006, Kinetic entered into a joint venture with Sanyang Industry Co. Ltd. , a Taiwanese two-wheeler manufacturer, to produce a range of scooter models.

The first model from this range was expected to roll out in March 2007. “The automatic (gearless) scooter market is witnessing rapid growth and we will have products in [74] every segment from the mass, to the convenience driven to the premium end,” said Sulajja Firodia Motwani, joint managing director of Kinetic. Yamaha was also planning to launch a gearless scooter in 2007. Responding to the growing demand for gearless scooters, BAL unveiled two new gearless scooter models at the Auto Expo held at New Delhi in January 2006.

While the Kristal DTS-I, a sub-100cc model, was to target teenage girls, the Blade DTS-I, a 150 cc model with 12-inch alloy wheels and disc brakes was to target young males (Refer Exhibit VIII for photographs of the new models). The new scooter models were to be launched in late 2006. Meanwhile, BAL’s market share in the scooter market had dipped to an all-time low (Refer Exhibit IX for market shares in the scooter segment between April and August 2006). In June 2006, BAL announced its plans to raise production capacity from 3. 5 million units to 5. 1 million units a [75] year by 2009, of which the capacity for two-wheelers was to be 4. million units. According to sources, the company’s main focus would continue to be the motorcycles segment. BAL planned to launch a new motorcycle model, the Sonic, in 2006-07. It also had plans to launch a 220 cc variant of its popular Pulsar motorcycle. The [76] company planned to invest heavily (around Rs. 15 billion) in infrastructure, research and development, etc. (Refer Exhibit X for the financials of BAL). Besides, BAL intended to improve its presence in foreign markets like Latin America, South-east Asia, Africa, China, and the Middle East.

Though the motorcycle had become the favorite two-wheeler of the Indian customer, most analysts did not expect the demand for scooters to disappear. The scooter market, according to them, was not dead; it was merely going through a transformation. The geared scooter was giving way to the gearless scooter. It was argued that a section of the population, especially the women and the elderly, would opt for gearless scooters, due to their convenience. Moreover, with the launch of sporty gearless scooter models, even young men might be tempted to shift loyalties.

Also, as of mid-2006, rising fuel prices made even the most fuel-efficient motorcycles expensive to run. With newspaper reports suggesting that Kinetic, TVS, and some other players were toying with the idea of launching electric scooters and scooters which would run on alternate fuels like CNG, LPG, etc. , it appeared as if the scooter vs. motorcycle competition was far from over. Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 9 of 24 Exhibit I Bajaj Group of Companies * Company** Mukand Ltd.

Business Manufacturer of stainless, alloy, and special steels (carbon and alloy steels), specialist in highway construction and international trading, real estate development, bulk material handling equipment (cranes), etc. Manufacturer of electric fans, highmasts, lattice closed towers and poles, etc. , and marketer of electrical goods such as general lighting service lamps, special lamps, compact fluorescent lamps, fluorescent tubes, luminaries, etc. Manufacturer of white crystal sugar and industrial alcohol. Provides financial services including hire purchase financing & leasing.

Manufacturer of fluorescent, miniature lamps and glass shells, lead glass, etc. Exporters of electrical fans, GLS lamps, fluorescent tubes, lighting fittings, luminaries, household appliances, and hoists. Manufacturer of ‘INDEF’ brand materials handling equipment such as triple spur gear chain pulley blocks, chain electric hoists, wire rope, electric hoists, traveling trolleys, EOT/HOT/stores stacker cranes, roll-out racks. Trading in metals, steels, and Ferro alloys. Construction, fabrication, and erection of industrial and infrastructural projects and InfoTech business.

Provides financial services in loans and investments, consumer finance, corporate finance, etc. Manufacturer and trader of ayurvedic medicines, hair oil, tooth powder, shampoos, etc. Investment and finance company Investment company Services company Manufacturer of carbon, alloy and stainless steel closed die forgings for automobile and general engineering applications. Life insurance Bajaj Electricals Ltd. Bajaj Hindusthan Ltd. Bajaj Auto Finance Ltd. Hind Lamps Ltd. Bajaj International Pvt. Ltd. Hercules Hoists Ltd. Mukand International Ltd. Mukand Engineers Ltd. Mukand Global Finance Ltd.

Bajaj Consumer Care Ltd. Jamnalal Sons Pvt Ltd. Bachhraj & Co. Pvt Ltd. The Hindustan Housing Company Ltd. Bombay Forging Ltd. Bajaj Allianz Life Insurance Co. Ltd. Bajaj Allianz General Insurance General insurance Co. Ltd. * excluding BAL. ** The list is not exhaustive. Source: www. bajajauto. com. Exhibit II A Photograph of the Bajaj Chetak Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 10 of 24 Source: www. premjis. com Exhibit III New Bajaj Logo (Released in 2004) Source: www. ajajauto. com Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 11 of 24 Exhibit IV A List of Two-Wheeler Manufacturers in India (1955-1980) Period of entry 1955-1969 Name of the Indian firm Name of foreign collaborator (if any) Enfield Ltd. , UK Innocenti Ltd. , Italy Segment Brand name of the product Royal Enfield Lambretta CEKOP, Poland Motorcycle Rajdoot Jawa Ltd. , Motorcycle Yezdi Czechoslovakia 1970-1980 Kinetic Engineering Ltd. Moped Luna – Scooter Vijai Super Scooters India Ltd. Majestic Auto Ltd. Moped Hero Majestic – Maharashtra Scooters Ltd. Scooter Priya – Sundaram Clayton Ltd. Moped TVS 50 – Source: Sunila George, Raghbendra Jha, Hari K. Nagarajan, “The evolution and structure of the two wheeler industry in India,” http://eprints. anu. edu. au. Exhibit V Trends in Market Shares in the Indian Two-Wheeler Segment (1996-2005) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Enfield India Limited Automobile Products India Escorts Ltd. Ideal Jawa Pvt. Ltd. of Motorcycle Scooter scooters otorbikes mopeds Source: www. fadaweb. com. Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 12 of 24 Exhibit VI Emission Norms in India A vehicle’s exhaust is made up of different constituents like carbon monoxide, hydrocarbons, sulphur dioxide and nitrogen oxides. The emission norms specify the maximum permissible level for these constituents. In India, the first vehicle emission norms came into force in 1991 for petrol vehicles and in 1992 for diesel vehicles.

In the mid-1990s, the acceptable limits of carbon monoxide, hydrocarbons, and nitrogen oxides emissions were gradually lowered. In 1995, unleaded petrol was introduced in four metropolitan cities of India. By 2000, the use of leaded petrol had been completely phased out in the country. In 2000, the GoI introduced new emission norms for both petrol and diesel vehicles. The norms introduced in India in 2000 were equivalent to Euro I norms. In 2001, Bharat Stage II emission norms (equivalent to Euro II) for automobiles were introduced in all four metropolitan cities in India.

In October 2003, the GoI approved an auto fuel policy that laid out a roadmap for implementing the Indian equivalent of Euro-II, III, and IV vehicular emission standards by 2010. According to the policy, Bharat Stage-II norms were made applicable for two- and three-wheelers from April 1, 2005, and Bharat Stage-III (equivalent to Euro-III norms) would come into force preferably from April 1, 2008, but not later than April 1, 2010 (Refer to table for permissible limits of emissions for two-wheelers, both two stroke and four stroke). Emission Constituents (gram/kilometer) 1991 1996 2000 2005 Carbon monoxide 12 4. 5 2. 0 1. Hydrocarbons + Oxides of Nitrogen 8 3. 6 2. 0 1. 5 Source: SIAM report on vehicle emission standards in India, www. cleanairnet. org. Two-wheelers in India constitute 76% of the total of 40 million vehicles on the road. Therefore, the emission norms for two-wheelers in India are one of the most stringent in the world. Compiled from various sources. Year Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 13 of 24 Exhibit VII Scooter Models in the Indian Market Company Model Price* Bajaj Kinetic Wave (110cc) Zoom (110cc) Two-stroke Kinetic 4S (113. cc) Zing 80 (72cc) Kine (72cc) Nova (135cc) Blaze (165cc) Activa (102cc) Dio (102cc) Eterno (150cc) Scooty Pep+ (88cc) 32,500 38,100^ 39,[email protected] 25,900 26,650 36,793 49,900 37,800 38,700 34,300 32,000 36,500 Weight 110 100 104 82 82 103 136 111 104 139 95 104 Particulars Positioning Mileage (Kmpl)# 45 Styling and convenience – for females 45 Durable and powerful 50 50 55 45 45 55 50 50 Reliability and convenience Coolness Combination of style, convenience and performance Advanced technology Power and styling Designed for everyone Styling Value for money Styling – for female teenagers For females

Honda TVS Hero Honda Pleasure (102cc) # mileage as per auto reviews. * ex-showroom Pune (in 2006). ^ ex-showroom Bangalore (in 2001). @ ex-showroom Chennai (in 2005). Compiled from various sources. p gg Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 14 of 24 Exhibit VIII Bajaj’s New Scooter Models A. Blade Source: www. indiabike. com. B. Kristal Source: www. blonnet. com. Exhibit IX Scooter Market Shares in April-August 2006 Bajaj 2%

Kinetic 5% Hero Honda 10% HMSI 50% TVS 33% Source: Nirbhay Kumar, “Bajaj to re-launch ungeared scooters,” Corporates & Markets, Financial Express, September 15, 2006. Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 15 of 24 Exhibit X Bajaj Auto Financials 2005-2006 (Rs. in million) 81,064 17,946 226 3 1,910 15,807 4,791 11,016 225 (8) 11,233 – 11,233 4,615 6,618 111. 0 2004-2005 (Rs. in million) 63,228 13,215 490 7 1,854 10,864 3,196 7,668 – 18) 7,650 (358) 7,292 2,884 4,408 75. 6 Net sales & other income Gross profit before VRS compensation, interest & depreciation VRS compensation Interest Depreciation Profit before taxation Provision for taxation Profit after tax Tax credits pertaining to earlier years Prior period adjustment Adjustment on account of write-down of deferred tax assets Disposable surplus Proposed dividend (inclusive of dividend tax) Balance carried to general reserve Earnings per share (Rs. ) Source: www. bajajauto. com. END OF QUESTION PAPER

Suggested Answers Integrated Case Studies – I (MB371) : October 2007 Case Study 1. The Chetak was one of the first offerings in its category from an Indian manufacturer launched in 1972 and that reigned over the Indian two-wheeler market in the late 1970s to early 1990s. Several factors contributed to the near iconic status of the Bajaj/Chetak brand: Chetak stood for loyalty, dependability and durability: To begin with, the name “Chetak” was associated with Indian heritage. The scooter was named after the famous horse of the great Rajput ruler, Maharana Pratap Singh.

According to folklore, the horse saved his master’s life in battle. In essence, “Chetak” stood for loyalty and dependability. In the 1970s and 1980s, scooters dominated the Indian two-wheeler market. Most middle-class Indians preferred scooters because of their durability. Affordable and ideal product: More than the name, the Chetak was a product that was ideal for its times. It was quite affordable and within the budget of an Indian middleclass family. It was versatile; the Chetak was used for transporting people, for carrying luggage, etc.

In the 1970s and 1980s, Indian roads in most cities and towns were pothole-ridden and the Chetak could withstand these bad road conditions. Simple technology and low maintenance: The technology that went into the Chetak was simple and therefore the owner could have the scooter serviced/repaired by roadside mechanics (the company did not have a very elaborate service network then). The spare parts were easily available and were reasonably priced. The Chetaks also had good resale value. In sum, the Bajaj Chetak was value for money and a vehicle that the customer could rely on throughout his life.

Advertisements: In its advertisements, popularly known as the “Hamara Bajaj” (our Bajaj) ad campaign, BAL promoted the Chetak on “Indianness”. The ads tried to capture the values and ethos of the Indian middle class – its target market. The use of the word “Hamara” (our) was an effort to convey the pride of owning something Indian. The ads showed slice-of-life situations where the entire family used the Chetak. The advertisement campaign also contributed to the iconic status of the Chetak. Low cost manufacturer: BAL gained cost competitiveness by its low cost manufacturing.

Over the years, BAL became one of the lowest-cost manufacturers of scooters not only in India, but also globally. The Bajaj Chetak and Bajaj Super are low price vehicles affordable to low and middle class Indians. Even though they are not stylish people accepted them because of their low prices, low maintenance cost and sturdiness. Over the years, BAL became one of the lowest-cost manufacturers of scooters not only in India, but also globally Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only.

Page 16 of 24 Better personal transportation: During the 1970s, two-wheeler sales recorded high growth rates (around 15% p. a). This growth was partly attributed to the inefficient public transport systems in the country’s towns and cities, which led to a greater demand for personal transport. With only a small section of the population able to afford cars (the supply of which, as well as the choices available, was also limited due to the License Raj), two-wheelers offered the only practical personal transport option for the masses.

BAL took this opportunity and introduced its Bajaj Chetak, which is sold out like hot cake. Versatility: The Bajaj Chetak, with their versatility, were the preferred two-wheelers for middle class Indians. Fuel efficiency: With fuel costs rising steeply during the period, even the people who owned cars purchased two-wheelers, which they usually used for short trips and errands. By taking this opportunity BAL launched its two new scooter models (the Chetak and the Super) and conquered the two wheeler market.

Value for money appeal: They were also cheaper to own and maintain, hence provide value for money. Seller’s market: During this period, the two-wheeler market, like the markets for most other consumer goods in India then, was completely a seller’s market. The demand for two-wheelers far outstripped supply, a situation which persisted until the mid-1980s. At the peak of its popularity, the waiting period for the Bajaj Chetak was anywhere between 10 and 12 years. As Rahul reminisced, “In North India, for two or three decades, marriages did not happen without a Chetak.

It was a compulsory dowry item. ” Lighter weight vehicle: In 1970’s and 1980’s the motorcycles available in India were heavier and not as fuel efficient as scooters. They were also costlier. As a result scooters dominated the Indian two-wheeler market. Bajaj chetak became popular because of its durability, versatility and low maintenance costs. Monopoly/Non-availability of alternative choices: However, one can argue that customers purchased Bajaj scooters because they had limited choice. In the 1970s and 1980s, the Indian two-wheeler market was considered as a “seller’s market”.

The market was heavily regulated, with companies required to secure a multitude of licenses. Also, foreign firms were not allowed to enter. Bajaj scooters competed with the likes of Lambretta (a fuel guzzler) and Vijay. In comparison with its competitors, Bajaj scooters were superior in terms of fuel-efficiency and other critical factors. Therefore, it is possible that Bajaj/Chetak would not have gained a near-iconic status had there been more competition, especially from global players like Honda, Yamaha, etc. lt; TOP > 2. BAL was unprepared for the changing environment as it had hitherto been a near monopoly. Its unpreparedness was evident in the following aspects: With respect to consumer satisfaction • Failure to read market trends: Despite being the undisputed leader of Indian two-wheeler market in the 1970s, 1980s, and till the mid-1990s, BAL failed to read the market trends. Though it later achieved success in the motorbike segment with its CT100, Pulsar, and Discover models, Bajaj slipped in the scooter market.

It should have upgraded its scooters and launched new models, especially in the gearless segment. Though there were a few gearless models like the Spirit, the Sunny, the Saffire, etc. , they seemed to have technical problems, which indicated that BAL’s R&D efforts were insufficient. BAL’s mistakes allowed the competition, especially Honda, to grow. Shift in consumer preferences: With consumer preference changing from scooters to more stylish looking motorcycles BAL was unable to hold onto the number one position and had to relinquish it to Hero Honda.

Motorcycles taking over: Motorcycles, with their improved styling and power attracted young men more than the staid products sold by BAL and other scooter manufacturers. Motercycles are more fuel efficient compared to scooters. • • Increase in middle class income: In 1990’s, the Indian economy was beginning to grow rapidly. This growth was palpable even in small towns and rural areas where a number of households saw their incomes rise, opening up a new market for two-wheelers. In these regions, motorcycles were preferred to scooters because of poor road conditions.

Hence there is a down trend for scooter market as well as Bajaj Chetak. • Shift from scooters to motorbikes: The MNC manufacturers tied up with banks and other financial institutions to provide easy finance options to the customer. This helped expand the market. Customers could afford motorcycles, which then were usually costlier than scooters. As a result of these factors, the Indian two-wheeler market started shifting from scooters toward motorbikes. With respect to technological innovation • Lack of modern technology: Even though the GoI’s thrust on setting up manufacturing units in India • p gg

Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 17 of 24 paved the way for the initial development of the auto industry, the “closed market” resulted in a lack of technological innovation. The GoI encouraged local companies to enter into collaborations with foreign firms so that they could gain technological expertise and encouraging technology upgradation. Although, Indian two-wheeler firms had entered into technical collaborations in the 1960s, the foreign firms were not always very keen on parting with their latest technologies/designs.

Since Indian firms invested next to nothing on R, they were entirely dependent on their foreign partners for technology. • Complacency in terms of technology: Because of limited competition, it was possible that Bajaj became complacent and did not feel the need to upgrade in terms of technology or design. The company spent little on R and customer service in that period. Product design plays an important role in satisfying the customer. According to changing customer preferences organizations need to bring in changes to the product design. BAL failed to acknowledge this aspect.

However, with liberalization, and the entry of foreign players, the market changed significantly. Customers now had greater choice. New models with greater fuel efficiency and more stylish looks were introduced, while Bajaj continued to sell the same models, with minor changes. With respect to growing competition Due to the liberalization of the government policy the foreign and Indian MNCs entered the two-wheeler market which resulted in increased competition for BAL, which the company was unprepared to meet. Competitors gained over BAL in the following ways: • •

The foreign automobile manufacturers too were eager to grab the opportunity of exploiting an underserved market The foreign firms came with the latest technology and efficient production systems, which dramatically improved the quality of the motorcycles available in the market (fuel efficiency, style, performance, mileage) Introduction of low cost motorcycles (compared to old motorcycles) The price differential between scooters and motorcycles had narrowed Customers, who still preferred scooters to motorcycles, were forced to look to competitors for new and exciting models of scooters. • • •

With respect to policy changes by GOI • The GoI made several policy changes in the 1970s and early 1980s to give an impetus to the auto industry. In 1980, the focus was on modernization, encouraging technology upgradation and promoting healthy competition in the domestic market. As part of these policy initiatives, the GoI allowed foreign auto companies, mostly from Japan, to enter the Indian market through joint ventures with Indian companies. New set of emission norms: The new set of emission norms – Bharat Stage II (equivalent to Euro II emission norms) – for petrol two-stroke engines came into effect in 2000.

With this development, scooters with two-stroke engines fell out of favor. This was a blow to BAL, which primarily sold twowheelers with two-stroke engines. ; TOP ; • 3. a. Every product has a life cycle consisting of four stages – Introduction, Growth, Maturity and Decline Chetak’s life cycle can be broadly explained as follows: Introduction In 1972 Chetak was introduced in the Indian scooter market. Chetak was one of the first offerings in its category from an Indian manufacturer and was the flagship scooter model of the company. For Chetak this stage was marked by lack of competition.

Growth During the 1970s and 1980s’ Chetak scooters dominated the Indian two-wheeler market. Most middle-class Indians preferred scooters because of their durability, low maintenance costs, and versatility, and the Bajaj Chetak name became synonymous with scooters. At that time, the motorcycles available in India were heavier and not as fuel efficient as scooters. They were also costlier. BAL became one of the lowest-cost manufacturers of scooters not only in India, but also globally. All these factors attributed to Chetak’s popularity and dominance and growth in the scooters segment.

Maturity In the late 1980s’ although BAL entered the motorcycles segment, Chetak continued to be the leader in the scooters market. Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 18 of 24 The early 1990s saw a recession in the Indian two-wheeler market. Overall sales of two-wheelers declined by 15% in 1991 and 8% in 1992. This period also saw a steep rise in fuel prices, which resulted in consumers placing greater emphasis on fuel efficiency when purchasing a new two wheeler.

Also consumer preferences were shifting towards motorcycles. Scooters were BAL’s main products, and when market preferences shifted to motorcycles, the company was faced with declining sales and revenues, which was also applicable to Chetak. To keep up with the changing market, BAL started upgrading technology and launched more stylish models of Chetak. Decline Due to the technological advances, increase in competition and shift in consumer’s tastes and preferences, in the late 1990s, the pattern of demand changed and motorcycles became the fastest growing segment of the two-wheeler market.

While these changes were taking place in the market, the features of scooters, especially those of the Bajaj Chetak, remained essentially unchanged. Consequently, Chetak which had for the past 30 years remained unchanged totally lost out. Chetak, the flagship scooter model of BAL for over two decades, had to be phased out because BAL had neglected it in terms of design, technology, and innovation. In January 2006, BAL announced that it had stopped production of the Chetak. With this announcement, BAL closed a major chapter in its history. . With the end of Chetak nearing, BAL knew that the demand for geared scooters was disappearing. Following are the various strategies adopted by BAL to extend the life of its scooters: Product augmentation : The Chetak was upgraded with a new four-stock, 125 cc engine, with a promise of greater comfort and superior performance. Pricing : One of the reasons for the growing preferences for motorcycles over scooters was that price differential between scooters and motorcycles has narrowed.

Hence as a strategic move BAL lowered the prices of the Chetak and the Super. Product reposition : Minor style changes were incorporated in Bajaj Chetak, and it was repositioned as an easy-gear scooter targeting customers in small towns – markets where scooters were traditionally accepted. Image makeover : New ad campaigns were also launched to brush up the Chetak’s image. The new ads moved away from the family man imagery; instead they focused on individuality and strength of character < TOP > 4.

The new launches helped the BAL to refresh its image while also offering a wider range of two-wheelers to its customers. Towards late 1990s the overwhelming image of a scooter company that had once been nurtured through the “Hamara Bajaj” ad campaign, seemed to be working against the company. BAL created a perception of being conservative and middle-aged, not youthful. The advertisements, which prominently featured the Chetak, were successful in positioning the Bajaj brand as a reliable and trustworthy one. The efforts made by BAL to change the above image were: • • • • • •

The new ads moved away from the family man imagery; instead they focused on individuality and strength of character. Instead of geared scooters, the new commercials mainly showcased motorcycles, as a part of a conscious effort to change BAL’s image as a scooter manufacturer. They changed the looks of the bikes to make them more stylish. The new launches were complemented with a new communication campaign to inject vibrancy into the Bajaj brand. BAL came up with a new series of commercials at the end of 2001. The advertisements showed ‘slice of life’ situations of “new age” India.

BAL already having been a leader in scooter market launched gearless scooters with four-stroke engine catering to the needs of teenagers, women and elderly people, jointly developed by Tokyo R&D, a Japanese design firm. Launching the first motor cycle model in collaboration with Kawasaki. The new launches helped the company offer a wider range of two-wheelers to its customers, they also • • Suggested Answers with Examiner’s Feedback Edited by Foxit PDF Editor Copyright (c) by Foxit Software Company, 2004 For Evaluation Only. Page 19 of 24 helped it to refresh its image.

Ex: Pulsar (Premium), Elimiator (Cruiser) • • BAL created a new logo and brand line in a bid to renew its brand identity. The new logo was designed to symbolize confidence and excitement. Introducing DTSi technology in its motorcycle models. ; TOP ; 5. A product portfolio is the set of different products that an organization produces, ideally balanced so that some products are mature, some are still in their growth stage while others are waiting to be introduced. The best product portfolio is one that fits the company’s strengths and helps exploit the most attractive opportunities.

The company must develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products should no longer be retained. In this light, BAL’s product portfolio can be assessed as follows: Scooters • BAL initially manufactured the Vespa brand of scooters under a technical collaboration with Piaggio. In 1971, the agreement with Piaggio ended and the company began selling scooters under the Bajaj brand. In 1972, the Bajaj Chetak, a geared scooter with a two-stroke engine, was introduced.

Bajaj Chetak is the successful model of Bajaj Auto Limited. Bajaj Chetak occupied near iconic status during 1970s and 1980s. The market was targeted at middle class Indians. In 1975, BAL entered into a joint venture with Western Maharashtra Development Corporation (WMDC). BAL marketed the two-wheelers manufactured by MSL under the Priya brand. This JV was the result of the technology transfer policy of the GoI. To expand its portfolio of scooters BAL introduced the Bajaj Super, another geared scooter, in 1976. Bajaj Super targeted the middle class segment. Bajaj Super acquired a good market share.

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