Bajaj to launch two new brands in bid to recover market share

Mumbai: Struggling to make a mark in entry-level motorcycles, Bajaj Auto Ltdplans to launch two new brands in 2015 to gain share in a segment that accounts for nearly two-thirds of the motorcycle market. The launch will be a departure from the company’s strategy going back to 2010, in which it planned to use the Pulsarand Discoveras its umbrella brands.

The change comes amid intense competition in the motorcycle market between market leader Hero MotoCorp Ltdand Honda Motorcycle and Scooter India Pvt. Ltdsince 2010 when the two partners split. But Bajaj has seen only a tepid response to its new models; its share in the market has fallen to 17% in the first eight months of the current fiscal from 24% in fiscal 2010, forcing the company to rethink its strategy.

“Strategy is always a matter of adapting oneself to the changes in the market place,” said Rajiv Bajaj, managing director at BajajAuto. “While company’s strategy cannot change very six months, it is necessary for the firm to evolve the strategy on five or 10-year basis. So, in that context, we are planning to launch two new brands this year.”

The company also plans to launch new variants of existing models, which Bajaj hopes will help take the firm’s market share back to 24%. The new brands will take it up further, he added.

Despite what Rajiv Bajaj says, a look at decisions taken by the company since 2006 shows a flip-flop over its product launch strategy, which to some extent, has hurt its market position.

In 2006, Bajaj announced it would vacate the highly competitive, cheap entry-level 100cc motorcycle market as it was a drag on the company’s profitability. Bajaj was a distant number two in this market at the time with its Platina and CT100 models. Hero Honda’s Passion, Splendor and CD Dawn led the market with a wide margin.

In July 2009, in a u-turn of sorts, Bajaj launched a new brand called Discover DTSi in the 100cc segment positioning it as a bike that would not be a regular 100cc model but would have “all the qualities of a long-distance bike, and would go 80km to a litre”. Bajaj was already selling 125cc, 112cc and 135cc bikes under the Discover brand. Encouraged by the success of the Discover 100cc—it sold 48,000 units in the first month of its launch—the company introduced the Discover 150 the same year and discontinued the 135cc.

In 2011, it launched a new generation of the Discover 125. It was followed by another variant called Discover 125 T (Tourer) in 2012. In 2013, in yet another attempt to break the hegemony of rival Hero, the firm launched the 100T, 100M and 125T.

None of them helped arrest a decline in the Discover segment where the company’s share halved to 12%. It then re-launched the Discover 150 in two variants to try and regain the market share.

“Bajaj has made a few strategic mistakes. Nothing else explains such a drastic fall in market share,” said a former company official declining to be identified. “It has been introducing newer generation and variants of models far too early in its life-cycle. The positioning has confused buyers and has often cannibalized the sales of the existing models.”

He cited an instance of how the launch of Discover 125 in 2011 almost killed the Discover 150, a model that had helped the firm drive up overall volumes and taken its market share to a record 27% from April to September 2011.

Bajaj concedes that the drop in volumes and market share is largely the fallout of the strategy it adopted for Discover. “I acknowledge we had some problem with the Discover brand and (we are) trying to sort it out.”

Mahantesh Sabarad, deputy head-research at SBICAP Securities, says product failures in the two-wheeler market have been quite high compared with cars. For Bajaj, it has been moderately higher than others. “They have found it tough to sustain the rigours of a business cycle,” he said.

With its new brand and fresh variants of existing models, Bajaj is making yet another attempt to take on Hero, which corners 67% in the so-called commuter bike segment (those with 110cc engines).

It is planning to introduce a new model under a new brand name, positioning it between the Platina and Discover. Also in the works is a brand which would be positioned in the same segment where the company sells the Discover, but with different attributes.

Bajaj also plans to introduce two new variants of the Discover 100cc and 125cc in the economy segment. A new Platina with an electric start option and its patented DTSi technology is also in the works.

To be sure, Bajaj is the most profitable among the large two-wheeler firms. In the quarter that ended in September, Bajaj had an operating margin, a measure of profitability, of 20.8%; Hero MotoCorp’s was 13.5% and TVS’s 3.9%.

However, Bajaj’s absence from the scooter market, a segment it vacated in 2009 is a concern for analysts and dealers. One out of every four two-wheelers sold in the country is a scooter.

But Bajaj remains firm in his stance.

“I often tell my people (Bajaj employees and dealers) if you could not do well in the area you have been present (entry-level motorcycles), it’s wishful thinking that you would be able to do well in an area in which you are not present... Making a scooter is easy, selling one is tough,” he said. Bajaj says the company will make a comeback in the scooter market, a segment synonymous with the firm’s history, only when it has a model with strong differentiators.