Bajaj Auto Ltd.: Overtaken in the Indian Scooter Market
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Case Code: BSTR216 Case Length: 20 Pages Period: 1999-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Bajaj Auto Ltd. Industry: Auto & Ancillaries Countries: India Themes: Market Strategies, Customer Preferences, Competition |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Like Volkswagen Beetle, the product (Bajaj Chetak) had lost its relevance."
- Rajiv Bajaj, MD, Bajaj Auto Ltd., in January 2006.
"The scooter segment in India is over one million units and the segment has been witnessing an impressive growth for the past few months. Further, there is a huge untapped segment of women customers, which offers immense growth potential."
- Pawan Munjal, MD, Hero Honda Motors Ltd., in January 2006.
"Fact is, Bajaj was slow in reading the shift from scooters to motorcycles."
- An article in Business Today, in 2001.
Introduction
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 geared 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....
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