Page 320 - DMGT509_RURAL MARKETING

Unit 16: Marketing in Small Towns

subsidiaries in India. In the last four to five years, the two-wheeler market has witnessed Notes
a marked shift towards motorcycles at the expense of scooters. In the rural areas, consumers
have come to prefer sturdier bikes to withstand the bad road conditions. In the process the
share of motorcycle segment has grown from 48% to 58%, the share of scooters declined
drastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17% during
the year 2000-01. The Euro emission norms effective from April 2000 led to the existing
players in the two-stroke segment to install catalytic converters. All the new models are
now being replaced by 4-stroke motorcycles. Excise duty on motorcycles has been reduced
from 32% to 24%, resulting in price reduction, which has aided in propelling the demand
for motorcycles. Fierce competition has also forced players to cut prices of certain models.
Hero Honda has been an early-entrant in the 4-stroke segment of the two wheeler industry.
With a right mix of product styling and pricing the company helped garner a larger
market chunk of the 4-stroke market as compared to Bajaj Auto.

A shifting consumer preference towards motorcycles also enabled the fast growth of the
company in the last few years.
Of the total motorcycle sales, HHML has a maximum of around 36.5% market share in the
Western Zone and 28.6% in the Southern Zone which has remained more or less consistent
from FY2000 levels. In the Eastern Zone Hero Honda has a market share 12%. The company
has reported a fall in sales volume to 3,29,900 units from 4,79,630 units in motorcycles for
half-year ended September 2001 accompanied by decline in net sales by 29.2% to 10.38 mn
from 14.67mn. Competition has intensified over the last couple of years altering the
dynamics in the motorcycle segment with various companies planning to cash in on this
spurt in demand by calling off their JVs like Suzuki Motors planning to break- off with TVS.
Recently, Honda Corporation of Japan announced its intentions to setup a 100% subsidiary
to manufacture scooters and motorcycles.
Other players in the two wheeler industry include Bajaj Auto Ltd , Kinetic Motor Co. Ltd,
LML and Escorts Yamaha.

Low-interest regime has helped in reducing cost of loans, which will help in boosting
sales of 2-wheelers, since 80% of the two-wheelers are credit-stimulated. HHML, a part of
the Hero group, is a reputed name in the two-wheeler sector and the management has a
rich experience in the business.
HHML is a joint venture with Honda Corporation, Japan and over the years has been the
most successful Indo-Japanese venture in two-wheelers. The company has invested in
capex, in the past three years to cater to the increasing demand. The company has been
cash–rich and has been effectively utilizing its surplus.
Hero Honda resources combined with prudent working capital management. Hero Honda
has set a target of 20% volume growth and 25% turnover growth for the fiscal 2001-02. The
company has also set a turnover target of 200 mn from spare parts business in fiscal 2001-
02 up from 145 mn in 2000-01 and the business is expected grow faster than bike sales for
the next 5 years. It has planned to bring in operational efficiencies with special focus on
distribution, dealerships and pricing and the successful implementation of SAP R/3 (ERP-
Program- “Project Synergy“) has enabled proper planning and company wide efficiency.
Question

Analyse the case and discuss the case facts.

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