Bajaj Auto Limited Case Study

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CASE STUDY: 
BAJAJ AUTO LTD. 
EXECUTIVE SUMMARY 
Bajaj Auto Limited was established in 1945, initially importing scooters and three wheelers from Piaggioand later
becoming a powerhouse in the Indian two wheeler industry. This paper highlights the effects of the Indian
government policy on foreign imports until 1991, BAL’s marketing or lack of it during this period and the
evolution of the Indian two wheeler industry from scooters to 2 stroke and 4 stroke bikes with a strong emphasis
on BAL while reviewing its strategies. Along with the analysis, this paper suggests the possibility of BAL moving
into developing markets in order to increase sales and establish a global footprint. The report also includes SWOT
& PESTLE analysis of BAL which will help it to formulate an effective marketing strategy for the next five years.
In addition to SWOT and PESTLE analysis, Porters five forces model was used to help gain a more
comprehensive understanding of external and internal

factors which will affect BAL in the coming years. 

      COMPANY PROFILE: BAJAJ AUTO LTD.     Bajaj Auto Limited (BAL) is the flagship company of Bajaj group, one of India's
well-known leading business houses.The aim of the report is to provide BAL with a comprehensively researched and analyzed
report which will help it develop an effective marketing strategy for their future growth in both its domestic and international
market. 
      {text:list-item}     In the early 1990s, Bajaj Auto Ltd’s two and three wheelers domestic market in India became stagnated.
Domestically, the two-wheeler market industry has declined by 5% between 1991 and 1992. Bajaj Auto faced severe competition
with one of the world’s major manufacturers, Japan, as they produced new and improved models of the two-wheelers, which
were crucial at the time (Mindak & Cook, 1984). However, had Bajaj Auto Ltd sensed the realities of the marketplace and dealt
with them through specificity and understanding in the early..

» Examine the evolution of an industry -- specifically, the Indian two-wheeler industry -- over time, and the challenges faced by
the dominant players with the industry being liberalized and opened up to competition.

» Appreciate the impact of the economic, social, and cultural changes on the fortunes of an industry.

» Analyze the strategies adopted by a company to stay relevant in a changing environment.

» Understand the importance of keeping track of changing customer changing needs and preferences and adopting a
customer-oriented product strategy.

» Gain insights into competition in the Indian two-wheeler market.

In January 2006, Bajaj Auto Limited (BAL), a major Indian manufacturer of two- and three-wheelers, announced
that it had stopped production of Bajaj Chetak, its flagship scooter model.

The Chetak, a geared4 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 collaboration with Piaggio5, 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 that of scooters and BAL lost its title of
India's largest two-wheeler company to Hero
Honda6. 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 the introduction and subsequent popularity of Honda Motorcycle and Scooter India
(HMSI)7 scooters, especially the Activa, a gearless8 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. 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 Company Ltd.9,
analysts felt that it would be an uphill task for BAL to once again become the largest scooter
manufacturer in India.

The demand shift from scooters to motorcycles in the 1990s was without parallel in any comparable product
category in India. This was mainly attributed to the change in customers' preference towards fuel-efficient and
aesthetically appealing models, which scooter manufacturers failed to provide. The delayed launch of new,
advanced scooter models, fear of four-stroke scooters being prone to increased skidding risks and vibrations, and
the difficulty of maintenance also contributed to this shift.

Interestingly, the growth in the motorcycle segment was mainly driven by the demand from rural and semi-urban
consumers. An estimated 60% of the demand for motorcycles came from rural and semi-urban customers.
 
The rise in their disposable incomes on account of good monsoons in the 1990s provided the normally
conservative rural and semi-urban customers with extra money that induced them to experiment with new,
innovative products.
 
Advanced technology, larger wheelbase, higher ground clearance and the ability to ride on bad roads with less
effort and less danger of skidding and decreased maintenance cost were the other factors that encouraged
customers to choose motorbikes over other two-wheelers.
 

The Industry Analysis - Five Forces Analysis

External Environment
Industry: Automobiles: Two Wheelers
Segments: Presence in all segments
 
Entry Barriers:
Entry barriers are high.
The market runs on high economies of scale and on high economies of scope.
The need for technical expertise is high.
Owning a strong distribution network is important and is very costly.
All these make the barrier high enough to be a deterrent for new entrants.

Supplier Bargaining Power:

Suppliers of auto components are fragmented and are extremely critical for this industry since most of the
component work is outsourced. Proper supply chain management is a costly yet critical need.
 
Buyer's Bargaining Power:
Buyers in automobile market have more choice to choose from and the increasing competition is driving the
bargaining power of customers uphill. With more models to choose from in almost all categories, the market
forces have empowered the buyers to a large extent.
 
Industry Rivalry:
The industry rivalry is extremely high with any product being matched in a few months by competitor. This
instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under the
technical collaboration with international players.
 
Substitutes:
There is no perfect substitute to this industry. Also, if there is any substitute to a two-wheeler, Bajaj has presence
in it. Cars, which again are a mode of transport, do never directly compete or come in consideration while
selecting a two-wheeler, cycles do never even compete with the low entry level moped for even this choice comes
at a comparatively higher economic potential.
 
Summarizing the industry analysis, it can be said that the two-wheeler market is attractive as it scores well on
three out of five categories.

SWOT Analysis
Let's analyze the position of Bajaj in the current market set-up, evaluating its strengths, weaknesses, threats and
opportunities available.
 
Strengths:
Highly experienced management.
Product design and development capabilities.
Extensive R & D focus.
Widespread distribution network.
High performance products across all categories.
High export to domestic sales ratio.
Great financial support network (For financing the automobile)
High economies of scale.
High economies of scope.
 
Weaknesses:
Hasn't employed the excess cash for long.
Still has no established brand to match Hero Honda's Splendor in commuter segment.
Not a global player in spite of huge volumes.
Not a globally recognizable brand (unlike the JV partner Kawasaki)
 
Threats:
The competition catches-up any new innovation in no time.
Threat of cheap imported motorcycles from China.
Margins getting squeezed from both the directions (Price as well as Cost)
TATA Ace is a serious competition for the three-wheeler cargo segment.

te 1990s to enhance its product line and knowledge up-gradation to support long-term strategies.
 
This served the purpose of sustaining the market competition for a while. From 1996 to 2000, Bajaj invested
hugely in infrastructure while simultaneously developing product design and innovation capabilities, which is the
prime reason behind the energetic Bajaj of 21st century. Bajaj introduced a slew of products right from entry-level
motorcycle to the high premium segment right from 2001 onwards, and since then its raining success all the way
for Bajaj.
 
Last quarter, Bajaj had impressive performance growing at a rate of 20%+ when the largest manufacturer grew at
just 6%. This stands a testimony to the various important strategic decisions over the past decade.
Marketing Strategies
Tows Matrix for BAL
 
        

The focus of BAL off late has been on providing the best of the class models at competitive prices. Most of the
Bajaj models come loaded with the latest features within the price band acceptable by the market. BAL has been
the pioneer in stretching competition into providing latest features in the price segment by updating the low price
bikes with the latest features like disk-brakes, anti-skid technology and dual suspension, etc.
 
BAL adopted different marketing strategies for different models, few of them are discussed below: -
Kawasaki 4S - First attempt by bajaj to make a mark in the motorcycle segment. The target customer was the
father in the family but the target audience of the commercial was the son in the family. The time at which
Kawasaki 4S was launched Hero Honda was the market leader in fuel-efficient bikes and Yamaha in the
performance bikes.
 
The commercial of Kawasaki 4S had the punch line "Kyun Hero" means "now what hero" which reflected the
aggressiveness in the marketing front by the company.
 
Boxer - It took the reins from where the Kawasaki 4S left. Target was the rural population and the price sensitive
customer. Boxer marketed as a value for money bike with great mileage. Larger wheelbase, high ground clearance
and high mileage were the selling factors and it was in direct competition to Hero Honda Dawn and Suzuki
MX100.
 
Caliber - The focus for the Caliber 115 was youth. And though Bajaj made the bike look bigger and feel more
powerful than its predecessor (characteristics that will attract the average, 25-plus, executive segment bike
buyer), its approach towards advertising is even more radically different this time around. Bajaj gave the mandate
for the ad campaign to Lowe, picking them from the clique of three agencies that do promos for the company (the
other two being Leo Burnett and O&M). Going by the initial market response, the campaign was clearly a hit in
the 5-10 years age bracket. So, the teaser campaign and the emphasis on the Caliber 115 being a `Hoodibabaa'
bike placed it as a trendy motorcycle for the college-goers and the 25 plus executives both at the same time.