Chennai: TVS Motor Co. faces a tough task in trying to recapture its sliding market share with new products in a market where demand for motorcycles and scooters is slowing as consumers delay purchases deterred by the high cost of financing.
For many years, TVS Motor was India’s third largest two-wheeler maker with a market share of 18-20% until it was overtaken in October 2011 by Honda Motorcycle and Scooter India Pvt. Ltd (HMSI). Since then, TVS has languished in fourth place.
The Chennai-based company expects to regain market share with new launches, chairman and managing director Venu Srinivasan said at the October launch of the Phoenix, TVS Motor’s executive-class bike. It plans to launch one more bike and two scooters over the next three quarters.
The company is in talks with German automaker BMW AG’s motorcycle division, BMW Motorrad, to source technological know-how for developing high-end motorcycles. Bigger rivals Hero MotoCorp Ltd and Bajaj Auto Ltd have signed similar pacts with foreign partners.
Hero MotoCorp is the leader of India’s two-wheeler market, the world’s largest for motorbikes after China. HMSI, which has gone past Bajaj Auto to become No. 2, and India Yamaha Motor Pvt. Ltd are chasing a greater share of a market where long traffic jams, frequent petrol price increases and more women opting to commute by two wheelers attest to potentially lucrative demand for bikes and scooters.
Slower economic growth and high interest rates have clouded consumer sentiment and deterred buyers in recent months. Growth in two-wheeler sales slumped to 4.1% in the nine months ended December, from 14% in the year ended 31 March.
TVS Motor’s market position has been under pressure since 2007-08, the year when the domestic two-wheeler industry sales declined by 8%. That year, the fall in TVS Motor’s domestic sales was even sharper at 19%, resulting in a decline in its market share to 16% from 18% in 2006-07, rating agency Icra said in an October 2012 report on the company.
“TVS Motor did see it coming but did not react fast enough,” said Umesh Karne, vice-president of research, who tracks the auto sector at Bric Securities Ltd.
Over the last five years, TVS Motor’s market share has slipped even further to 13% in 2011-12. Apart from the moped segment, in which it has no competition, in the other two segments—scooters and motorcycles—the growth of TVS Motor has been slower than that of its peers.
Weakness in its product portfolio because of under-representation in certain categories, relatively slower new product launches and premium pricing strategy are responsible for TVS Motor losing market share, said Icra.
The motorcycle market is dominated to the tune of 65% by 100-110 cc mass or entry segment bikes used for city commuting; TVS has just 5.9% of this market, with the Victor and the Star City; it took three years to put an upgrade of the latter on the roads after launching it in 2004-05.
In the executive segment comprising 125 cc bikes, the fastest growing, TVS Motor had no presence until August 2012, according to data from the Society of Indian Automobile Manufacturers (Siam).
“It takes 24 months to develop and bring out a new product,” said S.G Murali, chief financial officer of TVS Motor. “With the TVS Phoenix we now have a complete portfolio.”
TVS is represented in the premium 150-cc segment with the Apache brand. Phoenix is yet to prove a success.
In the next seven months, TVS will launch one executive-class bike and two scooters, a category in which it has been losing out to Honda. In the second quarter of 2012-13, TVS sold 170,000 scooters (down by 23%); Honda sold 320,000 units (up by 71%).
TVS’s Scooty brand was popular but Wego, a higher capacity scooter and positioned as a rival to the Honda Activa, didn’t take off as the company expected.
Over the past six years, the two-stroke bike Flame, the Jive, a bike without a clutch, and the Wego have failed to give TVS Motor a boost. Its most popular offering has been the Victor, a bike endorsed by cricketer Sachin Tendulkar, but the company hasn’t been able to replicate that success.
“TVS Motor has never launched the right product at the right time, they are behind competition,” said a dealer of the company’s products who didn’t want to be named.
The market was not ready for these products as they were ahead of rivals in terms of technology, Murali said.
Dealers said however that customer preference should have been taken into account early on in the development cycle and not during the test drive phase when only minor changes can be made.
They cited the example of the Max 4R in this regard, which sought to build on the success of the TVS 50 XL Moped. Seeing its wide used by milkmen and vegetable sellers, the company introduced the Max 4R targeted at the rural market and capable of carrying heavy loads. The only problem was that, after the rear was loaded up, the driver found it difficult to mount the vehicle.
The entry of multinational companies has made the motorcycle market highly competitive, increasing the importance of distribution and strategic product positioning, said Abdul Majeed, an auto expert from PricewaterhouseCoopers.
In the last one-and-a-half-years, HMSI has forged ahead of the competition with only erstwhile partner Hero ahead of it. “Our brand strategy was... to create, communicate and connect with stakeholders—suppliers, dealers and customers,” said Yadvinder Guleria, head of marketing at HMSI.
New launches will enable TVS to have a product in all segments, but the company’s renewed thrust on strengthening its product portfolio will need to be synchronized with the right pricing strategy, as most of its products are costlier than those of rivals, Icra said.
Back-to-back product launches may lead to bunching up of promotional expenses, implying likely pressure to some extent over the near term. In the past five years, it has used celebrities such as cricketers M.S. Dhoni and Virat Kohli and Hindi actor Anushka Sharma to endorse its products, spending Rs.638 crore.
New launches can help the company gain market share. But for products to succeed in the long run, they have to be differentiated, said the sales head of a rival company who didn’t want to be identified.
TVS also suffers from a problem of perception. “There is a common perception that TVS Motor is largely a south-based company,” said an analyst.
However, the company said 60% of its 800 dealers were outside south India.
Still, new products may help TVS Motor close the gap with its larger rivals provided the company is able to avoid strategic flaws that marred past launches.
Upcoming launches couldadd incremental volumes of 50,000 units to TVS sales on a monthly basis, improving market share potentially by four percentage points over a period of one-and-a-half years starting in November 2013, moving closer to its nearest competitor Bajaj Auto, Icra said.