c
c c

c
 

The Indian Automotive industry has the potential to emerge as one of the largest in the world.
India ranks number two globally in the two wheeler segment next only to China. It ranks 11th in
car production and 13th in commercial vehicle production globally. With increasing industrial
production and growing spending power of the Indian middle class households, the country is
expected to make it to the top five markets and commercial vehicles segment by 2020. The
Indian automotive industry is highly competitive with a number of global and Indian companies
present in the market. The foreign companies are present in India either through joint ventures
with local partners, wholly/partially owned technology tie-ups or as subsidiary companies of
parent companies. The industry is also witnessing diversifications by players in other segments.
The passenger cars and other commercial vehicles industries in particular are poised to witness
the entry of new players. In the year 2006-2007, sales of the Indian automotive industry crossed
the historic landmark of 10 million units. This extraordinary growth had been driven with a
buoyant economy, increasing purchasing power of the Indian middle class, new product launches
and attractive new financial schemes from financial institutions and automobile manufacturers.
Of the total sales, roughly 10% was contributed by exports to various countries. The Indian
motorcycles market generated total revenues of $6.8 billion in 2007, representing a
compound annual growth rate (CAGR) of 10.5% for the period spanning 2003-
2007.Motorcycle sales proved the most lucrative for the Indian motorcycles market in 2007,
generating total revenues of $6.6 billion, equivalent to 97.3% of the market's overall 
value. The performance of the market is forecast to accelerate, with an anticipated CAGR of
13.4% for the five-year period 2007-2012, which is expected to drive the market to a
value of $12.8 billion by the end of 2012

ANALYSIS OF CONSUMER BEHAVIOUR IN AN AUTOMOBILE INDUSTRY

Consumer behavior is dependent on few factors that need to be considered in any industry. In the
Automotive industry, there are several intertwining factors known. In view of the Internet being
an important medium through which customers may be communicated with, customer behavior
becomes an important subject.
Observing customer behavior in the recent past, it is observed that there is immense scope for
expanding the automotive industry. This is because there appears to be a better response from
customers through the Internet. Purchases of parts are easily made and are believed to be
considerably reliable. For purchasing vehicles, advertising through the Internet is the first step
towards pulling in customers. Indeed, this step is believed to be effective as there are a number
of individuals who first see adds online, and then decide to physically check a promotion out.
With the Internet growing more and more common in the UK, it is expected that there will be
much more activity on the part of consumers, which means that the automotive industry is going
to do even better than it has in the past.

Most current owners of luxury cars tend to have purchased a car previously, the customer has
potentially developed an attitude toward it. Here, an attitude becomes an evaluating judgement
(desire or not desire) based on prior or present experience such as previous satisfaction from
dealersor products and services (after sales and warranty), driving experience, and socio-
economic status ofcustomers. It is also possible that an attitude can be developed based on prior
information withoutexperience, as when consumers develop preferences or biases for or against
brands based on thebrands¶ images in the marketplace. This also depends largely on purchasing
power of individualcustomers. Customers may have a favourable attitude towards some
manufacturers¶ luxury cars, butmay lack the ability due to insufficient purchasing power or
willingness to take buying action. Onthe other hand, luxury or lower luxury (lower-priced)
manufacturers¶ cars may be neglected bycustomers who have high purchasing power (or over-
purchasing power in this sense). For example,most buyers (with high, medium, or low income)
tend to have a preferable attitude towards somemanufacturers¶ luxury cars such as Aston Martin,
Bentley, Ferrari, Porsche, and Rolls-Royce, thoughthe majority of them might not even have had
a test drive before. The difference is that customerswith low to medium income may still also
anticipate the quality of smaller sized cars ofmanufacturers from the lower segments such as
Fiat, Ford, Peugeot, and Vauxhall, as these cars areaffordable to them. In other words, cars from
lower segments have the meaning of µreality¶ to them.
In contrast, the better-off buyers will only appreciate expensive cars from luxury marques and
maydisregard inexpensive cars from any marques (even from a luxury one e.g., the least
expensive AudiA3 or BMW 3 Series Compact) as their choices. Accordingly, if one is interested
in predicting buyerbehaviour of luxury automobiles, an assessment of potential buyer attitude
towards the car is needed.To further specify the definition of customer attitude towards luxury
cars, a set of attitudevariables which potential buyers of luxury cars might hold was developed in
discussion with luxurycar dealers (Audi, Jaguar, Mercedes, Lexus, and Volvo) at the London
Motor Show ¶97 at Earl¶sCourt Exhibition.
The following variables were identified:
(1) reliability (2) quality (3) durability (4)safety (5) security (6) performance (7) efficiency (8)
technology (9) handling (10) value (11) style(12) comfort (13) prestige (14) status, and (15)
visual impact.



is a major India Automobile manufacturer. It is India's largest two- and three-
wheeler maker. It is based in Pune, Maharashtra, with plants in Akurdi and Chakan (near
Pune),Waluj and Patnagar in Uttaranchal. Bajaj Auto makes and exports motor scooters,
motorcycles and the auto rickshaw.

Over the last decade, the company has successfully changed its image from a scooter
manufacturer to a two wheeler manufacturer. Its product range encompasses scooters and
Motorcycles. It¶s real growth in numbers has come in the last four years after successful
introduction of a few models in the motorcycle segment.
The company is headed by Rahul Bajaj who is worth more than US$1.5 billion.

Bajaj Auto came into existence on November 29, 1945 as M/s Bachraj Trading Corporation
Private Limited. It started off by selling imported two- and three-wheelers in India. In 1959, it
obtained license from the Government of India to manufacture two- and three-wheelers and it
went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce
and sell 100,000 vehicles in a single financial year. In 1985, it started producing at Waluj in
Aurangabad. In 1986, it managed to produce and sell 500,000 vehicles in a single financial year.
In 1995, it rolled out its ten millionth vehicle and produced and sold 1 million vehicles in a year.
The company recorded revenues of INR86,632.9 million (approximately $2,152 million) in the
fiscal year ended March 2008. The operating profit was INR12,192 million (approximately
$302.9 million) in fiscal 2008. Its net profit was INR7,559.5 million (approximately $187.8
million) in fiscal year 2008.

Market structure

In economics, market structure (also known as market form) , describes the state of a market
with respect to competition .It is the way that suppliers and demanders in an industry interact to
determine price and quantity.

Market structure differ according to

‡ number of firms in market
‡ ease of entry and exit in the market
‡ ability of firms to differentiate their products

An oligopoly is a market dominated by a few large suppliers. The degree of market concentration
is very high or a large percentage of the market is served leading firms. Firms within an
oligopoly produce branded products and they advertise and market their product to survive in the
competitive market. Also, there are also barriers to entry.

Another important characteristic of an oligopoly is the interdependence between firms. This

means that each firm takes into account the likely reactions of other firms in the market when
making pricing and investment decisions are taken.

Two wheeler automobile industries are oligopolistic in nature

To understand the nature of market Herfindahl-Hirschman Index and concentration ratio tools
are used.



c c

Market concentration is a function of the number of firms in a market and their respective market
shares. To interpret market data, Herfindahl-Hirschman Index ("HHI") of market concentration
is used. The HHI is calculated by summing the squares of the individual market shares of all the
firms. It gives proportionately greater weight to the market shares of the larger firms, with
respect to their relative importance in the competitive market.

The market is

! not concentrated (HHI below 1000)

! moderately concentrated (HHI between 1000 and 1800)
! highly concentrated (HHI above 1800)

   !



      ! "
HERO HONDA 49.10% 43.65% 48.80% 52.17% 50.80% 48.48%
 MOTORS
 #$% #% #% "#&$% #% #"%
TVS 13.69% 17.53% 14.64% 11.69% 10.86% 11.17%
YAMAHA MOTOR
INDIA 0.00% 0.00% 6.24% 4.88% 3.98% 3.94%
EICHER MOTORS 0.00% 0.00% 1.17% 1.06% 0.99% 0.91%
LML 2.16% 4.75% 3.99% 1.79% 0.71% 0.60%
KINETIC 1.38% 1.26% 1.13% 0.42% 0.35% 0.18%
YAMAHA MOTOR
ESCORTS 10.37% 8.08% 0.00% 0.00% 0.00% 0.00%
EICHER 1.41% 1.33% 0.00% 0.00% 0.00% 0.00%
SOORAJ
AUTOMOBILES 0.08% 0.00% 0.00% 0.00% 0.00% 0.00%

c & $   !!& "! !&$

Source: CMIE Database

' 



The  

 of an industry is used as an indicator of the relative size of firms in
relation to the industry as a whole. It is calculated as the sum of the percent market share of the
top n firms. This assists in determining the market structure of the industry. One commonly used
concentration ratios the four-firm concentration ratio, or C4, which consists of the market place,
as a percentage, of the four largest firms in the industry.

‡ Perfect competition, with a very low concentration ratio.

‡ Monopolistic competition, below 40% for the four-firm measurement,
‡ Oligopoly, above 60% for the four-firm measurement
‡ Monopoly, with a near-100% four-firm measurement.

The four-firm concentration ratio, or C4

 HERO HONDA MOTORS 48.48%
 #"%
TVS 11.17%
YAMAHA MOTOR INDIA 3.94%

C4= 48.48+34.73+11.17+3.94= 98.32%

Ê

  


With each passing year we can see that bajaj auto has successfully achieve in retaining its market
share from 21.81% to 34.7%.
As per our findings we learnt that output production for two wheelers is highly concentrated.
Since hhi is above 1800 so the market is highly concentrated, this is characterized by a large
number of competitive firms operating in an industry. The implications of such a market are:
- High competition
- reduced profit margins
- More value for consumers
- Market is consumer driven

Concentration ratio reveals the fact that the output production of two wheeler industry majorly
lies in the hand of four firms namely Hero Honda, bajaj, TVS, Yamaha motor India.
The two wheeler industry has high entry to barriers in terms of high initial capital
investment requirement.. There are government restrictions in terms quality specifications and,
environmental factors.
The number of firms in various segments of the industry is few.
In an oligopolistic market of this magnitude most of the firms enjoy large profit margins, high
growth rates and a large market share. An oligopolistic faces a downward sloping demand curve
but the elasticity may depend on the reaction of rivals(competitors) to change in price and output.

(a) Rivals will not follow a price increase by one firm - therefore demand will be relatively
elastic and a rise in price would lead to a fall in the total revenue of the firm

(b) Rivals are more likely to match a price fall by one firm to avoid a loss of market share. If this
happens demand will be more inelastic and a fall in price will also lead to a fall in total revenue.

'


()


The kink in the demand curve at price P and output Q means that there is a discontinuity in the
firm's marginal revenue curve. Assuming the marginal cost curve cutting the MR curve then the
firm is maximizing profits at this point.
 

From the diagram,it can be inferred that a rise in marginal costs will not necessarily lead to
higher prices providing that the new MC curve (MC2) cuts the MR curve at the same output. The
kinked demand curve theory suggests that there will be (
    in these markets and that
firms will rely more on non-price competition to boost sales, revenue and profits.


The importance of Price and Non Price Competition

Firms compete for market share and the demand from consumers in lots of ways. We make an
important distinction between price competition and non-price competition. Š
  ( 
can involve discounting the price of a product (or a range of products) to increase demand.
 (
  (  focuses on other strategies for increasing market share. Consider the
example of the highly competitive UK supermarket industry where non-price competition has
become very important in the battle for sales

Š

*
*
  

The competition in the Indian Automobile (Two wheeler industry) .It can be described by this
Model
1. Threat to new entrants can be through:
a. Government policies: Post liberalization the market has been more open to the new
entrants resulting in entry of many foreign players.
b. Economies of scale: The Minimum Efficient Scale (MES) is the point at which unit
costs are minimized. The greater the difference between the MES and the entry unit
cost, greater is the barrier.

2. 
 Š+
  ((
 The bargaining power of suppliers is very low in the
industry. When there are many suppliers in an industry, they do not have much power. As
there are many suppliers to this industry; manufactures can easily switch to another supplier
if it is necessary. Forward integration provides economies of scale for the supplier.

3. 
 Š+
  )
 It specifies the impact of customers on the product. This
determines how much customers can impose on pressure on margins and volumes.
Customer bargaining power is higher when customer are price sensitive, better substitute
projects, purchase in high volumes. There is possibility of customer integrating backward

4. 
  ,  Š
 Product¶s price elasticity is affected by the presence of
substitutes (mopeds ,scooters, motorbikes, scooterets) as its demand is affected by the
change in the substitute¶s prices. The new technologies available also affect the demand of
the product.


5. c )

)'( 
: No perfect competition exists in such market. In
order to gain market share in the automobile must gain market share by taking it from their
competitors.

PRICING STRATEGIES

The company adopted various types of pricing strategies to attain competitive advantage#
 O
O 

O


O 

O 
 

O
O 

O 
O  O 

O  
O 





Š
cŠc'c - 

Use a high price where there is uniqueness about the product or service. High price is usually
charged for luxurious product.Bajaj followed premium pricing in one of their product i.e.
Bajaj Pulsar 200 cc segment bike.

! Š

c Šc'c - 
The price charged for product and services is artificially set low in order to gain market
share.
! Once the market share is achieved the price is increased.
! Bajaj followed penetration pricing while launching their Pulsar 150 cc segment
bike.
 ! Šc'
.cc -
The price of the product is charged high because one has a substantial competitive
advantage.
Bajaj followed price skimming in their Pulsar 220 cc segment.

! Š ' -c' Šc'c - 

This approach is used when the marketer wants the consumer to respond on an emotional
rather than rational basis.

Bajaj uses this pricing technique while pricing its bike in many segments. Eg--- Platina
Price - 29,990 Rs and not 30,000.


! Šc  Š
'Šc'c - 
Increases the amount customer spend once they start to buy.

Bajaj uses this pricing model while selling accessories with the bike or any of its product.

! Šc  Šc'c - 

Pricing is done to promote a particular product. Bajaj use promotional pricing during festive
season to promote its target product.

Factors affecting growth of the automobile industry:

 


year       ! !"
Total sales  !#   #  "$$ #"  !#$  !# &$&#"
motorcycle 8680.11 11141.5 13254.7 15784.5 18906 22508.7
scooters 2251 2041 2270 2745 2848 3252
three wheelers 1575 1953 2361 3017 3582 4069
Source: CMIE Database

 

+ 
 ! Economic liberalization leads to fewer government regulations and restrictions in the
economy in exchange for greater participation of private entities.
! increase in per capita income, leads to increase in disposable income thereby increasing
purchasing power of people.
! various tax relief policies
! easy accessibility of finance- banks provide auto loans ion minimal interest charges
which increases liquidity in market


)
 
+ 

     

year      ! !"
Total sales & #  #  # ! $# &!#
motorcycles 1893.4 2608.2 3185.2 4417 6108.4 7816.2
scooters 1037 749 526 314 267 53
three
wheelers 975 1154 1442 1471 1748 2227


Micro environment refers to all the internal factors which affect the working of an
organization. These are the factors which are controllable.Macro environment refers to all the
external factors affecting the working of an organization. These are the factors which are non-
controllable. An organization has to formulate its strategies and functions to be able to adjust
according to them.

The different micro controllable factors are:

* * 

Bajaj Auto Ltd manages all its finances through Bajaj Auto Finance Ltd. The below mentioned
bullets refer to the various ways in which Bajaj Auto ltd. managed its finances and raised funds.

! The Company achieved its highest ever disbursals of Rs.26,313 million under its various
financing schemes, during the year 2006-2007.
! It has a network of over 6,000 Bajaj Auto and consumer durable dealerships and over 50
branch offices throughout the country to handle all the requirements of its customers .
! Bajaj enjoys the trust and loyalty of over 40 lakh satisfied customers across the country.

'
 

! Highest Credit Rating of FAAA/Stable from CRISIL for Fixed Deposits

! P1+ rating from CRISIL for Short-Term Debt Programme
! AA+/Stable from CRISIL and LAA+ from ICRA for Long-Term Debt Programme


, +


Bajaj Auto has a network of 485 dealers and over 1,600 authorised service centers and 171
exclusive three-wheeler dealers spread across the country. Around 3,750 rural outlets have been
created in towns with population of 25,000 and below. The current dealer network is servicing
these outlets.
   

!  
  ) DTSi stands for Digital Twin Spark Ignition, a Bajaj Auto
trademark. Bajaj Auto holds an Indian patent for the DTSi technology.
!  
 
'  )  ExhausTEC stands for Exhaust Torque Expansion
Chamber, a Bajaj Auto trademark. This enhanced performance is claimed to come at no
loss of top-end performance or engine smoothness.
!
*  ) DTS-Fi stands for "Digital Twin Spark Fuel Injection", a µBajaj
Patented Technology¶.#





 ,  


  

# '( 
 

The major competitors of Bajaj are

! Hero Honda motors

! Tata motors
! Yamaha motors
! LML
! Honda
! TVS Motor
! PiaggioSpA

Entry of Foreign players would further intensify the competition. Hence, the firm¶s profitability
get

#

(  

Bajaj Auto ltd. is affected by several demographic features such as age, gender, occupation and
income.
Analysis of costs of Bajaj Auto

( 
#c'



Particulars Q4,2009 Q4,2008

* '
Store and Tools 16 18
Employee Costs 95 86
Factory and Admin. Costs 83 86
Total Fixed Cost & &
/
, '
Material Costs 1294 1518
Sales And After Sales Expense 110 105
Total Variable Cost  !
Total Expenditure  &$ $


  

Particulars Q4,2009 Q4,2008

Motorcycles 375439 482912
Three Wheelers 64830 69676
Total Units !&  $$
Source: Annual Report, Bajaj Auto Limited