Royal Enfield

Devising a strategy to enhance sales of Royal Enfield bikes 14th December 2004

Devising a strategy to enhance sales of Royal Enfield bikesVersion: 1.0 Submitted to: Prof. J.N. Godinho By: Gaurav (04PGHR ), Gulshan (04PGHR ) , Manasi (04PGHR ) , Neelesh (04PGHR ), Shaveta (04PGHR45 )

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Table of ContentsTable of Contents 1 Acknowledgement 2 Executive Summary 3 Introduction 3 3.1 About the company 3.2 Marketing Network 3.3 Collaborations 3.4 Manufacturing 3.5 Infrastructure and Technology Collaborations 4 SWOT Analysis 5 Market Environment 6 Consumer Behavior 6.1 Description of sample 6.2 Analysis of consumer survey 6.3 Buying Behaviour 7 Competitive Scenario 7.1 Porters five forces 7.2 Factors influencing buying decision 7.3 Comparative Analysis in Motorcycle Industry 8 Recommendations 8.1 Entry into other segments 8.2 Aggressive marketing & Advertising for brand reinforcement 8.3 Rejuvenating dealership network 8.4 Product Innovation 8.5 Financing schemes 9 References 22 9.1 Textbooks 9.2 Web References 3 3 3 4 4 6 7 9 9 11 14 16 16 18 18 20 20 20 20 20 21 22 22 i 1 2

Version: 1.0 14thDecember, 2004

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AcknowledgementThis project is aimed at understanding the Marketing Practices and implementation, through Royal Enfield bikes. The attempt has been to tie the various factors like Environment, Competitors and Consumers to understand the effectiveness of the present target market of the product. On the basis of the same, the Strengths, Weaknesses, Opportunities and Threats of/to Royal Enfield bikes have been identified. Also, an attempt to suggest some recommendations for increase in sales of the companys bikes has been made. Several people have played a significant role towards the successful completion of this project work and the researchers extend their gratitude to them. A deep sense of gratitude is owed to Mr. J.N. Godinho, Professor, Management Development Institute, Gurgaon who extended support and assistance throughout the project duration. Needless to say, his knowledge and experience have served as a continuous source of encouragement and motivation. Without his invaluable support and guidance this project would not have been possible. Also a note of thanks to the exclusive dealer of Royal Enfield bikes, Mr. Amit Chawla, who helped in understanding the sales and competition in the bike industry. Finally a note of thanks is due to all those too many to single out by names, who have helped in no small measure by cooperating during the project and by providing constructive criticisms.

Group VII

Version: 1.0 14th December 2004

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Executive SummaryRoyal Enfield is a motorcycle manufacturer, having its current base in India. The company is the currently leading the 350 c.c. bike segment with their flagship product Bullet. This report is an outcome of a study conducted to boost their sales, as part of our Marketing Practices Course assignment. There are several forces at work in every sector and every industry of an economy. The dynamic nature of every industry keeps the pulses of the companies operating in each sector racing. Our strategic analysis report is focussed on marketing and sales of Royal Enfield as a company. It also delves at all those forces at work that could potentially change the fortunes of a company. Be it a company that wants to enter a new market segment or a company that wishes to strategically position its products, this report is an invaluable tool for all. The report analyses the performance of the leading players in the motorcycle industry which are competitors of Royal Enfield or potentially can be one. This report outlines the study conducted for investigating the lean areas for Royal Enfield from a marketing and sales perspective. Also analyses have been mentioned at appropriate places in support of the same. To conclude, it provides a broad map of various strategies to boost Royal Enfield sales.


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33.1

IntroductionAbout the companyRoyal Enfield India was set up in 1955 when it started receiving 350cc bikes in kits from the UK and assembling them in Chennai, India. But, eventually the entire bike was manufactured in India and a couple of years later the Company started manufacturing the 500cc Bullet. By its sheer power, unmatched stability, superior riding comfort and rugged good looks, the Bullet dominated and continues to dominate the Indian roads. It is the dream choice of every motorcyclist in India with even the Indian Army and Police endorsing the Bike. In 1990, Royal Enfield entered into a strategic alliance with the Eicher Group, - a Rs.10 billion conglomerate and later merged with Eicher Group in 1994. The Eicher Group is one of India's leading automotive groups with diversified interests in the manufacture of Tractors, Commercial Vehicles, Automotive Gears, Exports, Garments, Management Consultancy and Motorcycles. Since then, the Company has made considerable investments in modernizing its manufacturing technology and systems and in 1996, when the Government decided to impose stringent norms for emission, Royal Enfield was the first motorcycle manufacturer to comply. Royal Enfield is amongst the first few Indian companies to obtain the WVTA (Whole Vehicle Type Approval) for meeting the European Community norms.

3.2

Marketing NetworkTo feel the pulse of the customers, Royal Enfield has set up a wide network of 13 marketing offices, 223 dealers in all major cities and towns, 25 spare parts distributors and stockists and 150 Authorized Service Centers. The Company also exports motorcycles to over 30 countries like the USA, Japan, Bahrain, UK, Germany and many European countries through 5 international offices, 25 importers and over 200 dealers across the globe.

3.3

CollaborationsRoyal Enfield has existing technical tie-ups with: AVL, Austria For new engines FW Egli For high power engines for 535cc and 624cc. Criterion Engineers, UK - For a new 5 speed transmission system DB Designs, UK - For styling


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The headquarters of Royal Enfield Motors is situated at Thiruvottiyur, Chennai, Tamil Nadu, India.

3.4

ManufacturingRoyal Enfield's manufacturing operations go through a series of modernization and improvement efforts, with a number of automated processes. The Company has put in place modern manufacturing practices like Cellular layouts, Statistical process controls and Flexible manufacturing systems. The Chennai manufacturing facility has received the ISO 9001 certification and for managing its operations in a clean and safe environment, it has obtained the ISO 14001-quality certification. Royal Enfield ensures that all the components used in the bikes are sourced from the best vendors in the Indian automotive industry, who are geared to supply according to the Companys stringent quality standards. The company works closely with all of its suppliers, giving them technical and managerial support while maintaining practices like Direct-On-Line and Vendor Self-Certification.

3.5

Infrastructure and Technology CollaborationsTo manufacture quality bikes that are well known worldwide for their reliability and toughness state-of-the-art infrastructure is required, and that is just what Royal Enfield has done at their Chennai manufacturing facility. An active in-house Research & Development wing is constantly at work to meet changing customer preferences and the challenges of Indian and International environment standards. When introducing a new product, this team undertakes all related planning which includes a rigorous customer contact program, design, concurrent engineering and testing processes. The bike Design team at Royal Enfield is well equipped with high-end CAD/CAM workstations and the latest modeling software. Top-notch designers work continuously to come up with innovative bikes designs to meet the markets expectations. Royal Enfield was also amongst the first Indian companies to introduce Enterprise Resource Planning (ERP) systems to manage its operations. It also has an online supply chain management system in operation. Presently there are five models of Royal Enfield bikes in the market viz.,


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Thunderbird

Bullet Machismo

The 2004 Bullet Electra

Bullet 350

Bullet 500


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SWOT AnalysisOpportunities o Introduction of bikes in entry and executive level segment o Encourage the sales with advertisement Strengths o No competition in 350c.c bikes o Proven product durability o Customer retention o Online supply chain management o ERP operated operations Weaknesses o High Prices o Less Advertisement o No bike in entry and executive level segment o No/little product innovation o Lack of attractive finance schemes o Increasing awareness by advertisement o Innovating with styling of bikes o Offering better finance schemes o Introduce customer relationship management o Entry of other players in 350 c.c segment Threats o Movement of industry towards premium segment e.g. Karizma 225c.c, Aquila etc. o Entry of exclusive foreign players


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Market EnvironmentIn the last six years, the domestic two-wheeler industry has seen structural changes. The motorcycle industry has been growing largely at the expense of the scooter and moped segments. Scooters having bottomed out, and mopeds likely to do so soon, the motorcycle industry is bound to have a slower rate of growth - and this may lead to a pricewar and pressure on volumes and growth of the high volume players. Growth will be fuelled by new introductions, tapping new segments and encouraging faster replacement / up-gradation through introduction of differentiated / customized offerings. For both motorcycle manufacturers and their suppliers, the risk would be of building/ adding huge capacities in anticipation of continued high growth rates. The motorcycles have consistently gained market share from the scooter and moped segments to corner a share of 41% of total two-wheeler sales. The table below gives an idea about the strides made by the motorcycle segment since 1993:

(in %) FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY2000

Scooter 47.2 47.5 46.8 46.0 43.9 41.5 39.0 33.2

Motorcycle 25.2 26.7 29.5 30.4 33.0 37.2 41.0 47.6

Moped 27.6 25.8 23.7 23.6 23.1 21.3 20.0 19.2

The motorcycle market is broadly structured into economy/commuter bikes and power, style and leisure bikes. The economy segment of the market comprises of entry level bikes and typically has the 100 cc motorcycles. The power, style and leisure segment comprises of bikes up to 180 cc. Royal Enfield is the only player in the 250 cc and above category and is positioned as the power and leisure bike manufacturer. Hero Honda is the leading player in the motorcycle market, with market share close to 48% followed by Bajaj Auto at 24%. Other players in the market are TVS motors, Yamaha Motors, LML and Kinetic Engineering.


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The Indian motorcycle industry can be broadly categorized in to Indian motorcycles and Indo-Japanese motorcycles. The Indo-Japanese motorcycle segment is dominated by Hero group, Bajaj and Escorts in collaboration with Japanese vehicle manufacturers Honda, Kawasaki and Yamaha respectively. The Indian motorcycles segment is dominated by Bajaj (M80), Escorts and Royal Enfield. In motorcycles sales, western region leads with a market share of 40% of the total motorcycle sales. South and north regions come second and third with a market share of 27.5% and 17.4% of total motorcycle sales respectively. Over the last couple of years since 2000-01, the motorcycle market has more than doubled to over 4.3 million units in 2003-04. The industry is expected to continue to grow in future also due to new products, availability of low cost finance and increase in replacement demand coupled with shift in customer preference to motorcycles over scooters. Different players with their offerings of bikes in different segments have been listed below: Company Bajaj Auto Entry Level CT100 Caliber115 Saffire Spirit CD-Dawn CD100 Splendor Passion Activa/Dio Boss EX Boss 115 Velocity Aderno Freedom 110 --TVS Yamaha Centra Max 100 Star Yamaha Crux Executive Level Discover Pulsar150 DTSi Pulsar180 DTSi Wind 125 Ambition 135 CBZ Eterno Unicorn GF170 Freedom 125 Bullet 500 Bullet 350 Electra Machismo Thunderbird Premium Level Eliminator

Hero Honda

Karizma

Honda Kinetic LML Royal Enfield

Comet

--Fiero F2/FX Victor GLX Enticer


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Consumer BehaviorIt is very important for an organization to understand its consumers buying behavior. Only when a company understands its consumers, it can modify its offerings to ensure maximum consumer benefit. Somewhere decisions relating to all 4 Ps are taken keeping in mind the consumer preferences. Since today all companies are following marketing concept, all decision making activities surrounds consumers. To understand the consumer buying behavior, we undertook a market research to understand what people think about Royal Enfield as a brand and how much is their level of awareness with respect to brand. The objectives of the consumer behavior study are: Factors influencing the buying behavior of consumer The price-demand relationship analysis Consumer Loyalty towards the brand Consumer awareness of the brand The primary source of data is personal interviews and questionnaire of individual customers selected on the basis of relevance and judgment, given the academic nature and the duration of the study. The study was carried out in Gurgaon. The primary focus was on following parameters: Psychographic and Behavioral parameters Brand Awareness Comparative attributes Substitutability Brand Usage Pattern Brand Loyalty Following page comprises of the description of the survey sample and the analysis of the consumer survey.

6.1

Description of sampleSample size- 25


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Income Group

100000-200000 200001-300000 300001-500000 >500001

Occupation

Students Service Business

Age Group

35yrs


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The personal details were very important. As they enabled us to analyze the consumer behavior on the basis of very important personal factors like age, occupation, and economic circumstances.

6.2

Analysis of consumer surveyThe findings of the survey conducted are listed below: Which vehicle do you own and for how many years? Please specify the brand also. The purpose of this question is to find out the number of users of motorcycles and further which is the most popular brand among the customers. The answers are tabulated as following: Company Hero Honda Brand CBZ Karizma Bajaj Auto Ltd. Splendor CT100 Pulsar 180 Caliber Croma Royal Enfield TVS LML Yamaha Kinetic Pulsar 150 Bullet 350 Fiero Energy RXZ YBX Challenger No. of users 2 1 1 1 1 1 2 1 1 1 2 2 1



For what purpose do you use bike? This was framed to find out what benefit do people buy bikes. Here we observed that 80% of the sample bought bikes for office/college purposes and about 10% used these for commercial purpose, rest being for occasional use. How do you come to know about new bikes and promotional schemes? The distribution of peoples response for this question is shown in the chart given below. This question confirmed that most of the awareness for brand comes from TV advertisements followed by word of mouth of friends and print media like auto specific magazines and general newspaper advertisement. This also confirmed the importance of advertisement for sales and awareness.

Print Me dia TV Advertise m e nts Friends & Fam ily Show room dealers On road parking lots

Please rate the following factors you would consider before buying a bike, according to your preference.



The attributes the consumer bears in mind while considering the purchase of a motorcycle have been tabulated below. The sum of the scores given by the respondents (on a scale of 8) to a particular attribute was divided by the total number of respondents to reach an average score per attribute. Mileage seems to be the most

important attribute for the bike buyers. Appearance is vital to the acceptance of a product and it is not surprising to find that it scores heavily among the respondents. Price follows appearance in the ranking and because a majority of buyers is from upper middle class and students, it has an important factor to ponder upon. Next in line is after sales service followed by finance options and maintenance. Surprisingly COMFORT has been ranked quite low and resale value is ranked last. This shows that the consumer assumes the purchase for life time. But it is essential for any product to set up proper after sales service centers in reach for the customers.Attributes Mileage Looks Maintenance Comfort After sale Service Price Resale Value Finance Options Average Score 7.2 6.8 4.5 1.4 4.9 5.2 0.7 4.6



Which bank would you like to take financial loans from? Most of the responses were in favor of State Bank Of India which shows people have more faith in the govt owned banks than the private banks. Who/what would you consult before buying the bike? The response to this question has helped to understand the reference groups/influencers for the buying decision. Weve come to know that the family, friends and colleagues have influenced the decision of the buyer much.Family Friends Colleagues Magazines & Brochures Show room s Internet

6.3

Buying BehaviourDifficult or uninteresting delegated tasks sometimes require from SIGNIFICANT DIFFERENCE BETWEEN BRANDS FEW DIFFERENCES BETWEEN BRANDS HIGH INVOLVEMENT COMPLEX BUYNIG BEHAVIOUR DISSONANCE REDUCING BUYING BEHAVIOUR LOW INVOLVEMENT VARIETY SEEKING BUYING BEHAVIOUR HABITUAL BUYING BEHAVIOUR



Following is the distribution of people who consulted one or two or more than three different sources before taking the final decision to buy the bike:NUMBER OF PEOPLE CONSULTED15% THREE OR MORE TWO 60% ONE

25%

From the above data, we can infer that most of our sample consulted more than 3 people before making the final decision. This is clear indication that the consumer are very highly involved in the purchase of a bike, which is understandable considering that bike is an expensive and long term buy for most. Also, judging by the response we got, the brand image of a high end purchase like a motorcycle influences the buying behavior greatly, it is indicative of the kind of after- sales services that the consumer can expect. The kind of distribution network that Royal Enfield has in India has helped promote its brand image in a big way. Moreover, it is the market leader in premium segment bikes as well, which develops the customers interest in the purchase from Royal Enfield. Therefore with reference to the figures given above, we can conclude that the customers of bikes exhibit complex buying behavior.



77.1

Competitive ScenarioPorters five forcesPotential Entrants Strengths: Stable returns Access to distribution channels Industry growth rate High product differentiation High buyers switching costs Incumbents defense of market share High capital requirements

Weakness:

Buyers Suppliers Industry Competitors Strengths: Cater to strong buyers Strengths: High market growth rate Supplied product is important input Existing strong or aggressive competitors Strategic stakes are high High level of product differentiation High switching costs for the buyers Brand identification Strengths: Large number of buyers Buyers incentives Sources of information Strong brand identity Many substitutes Proportion of income spent on the purchase High Switching costs Fragmented buyers High product importance

Weakness: Weakness: Many competitive suppliers No credible threat of downstream integration

Weakness:



Substitutes Strengths:

Technological advancement Many substitutes like scooters & A segment cars Price differences

Weakness:



7.2

Factors influencing buying decisionIts not easy to make a best choice in bikes. The specifications, style, power, price, riding comfort and ruggedness make all the difference in the buying behavior of customers. These factors interrelate in complicated ways to influence the buying decision Following are the major factors on the basis of which it is decided that which bike is better: Powertrain Fuel economy Mileage Style Price Top speed Features e.g. e-start option Engine Weight Riding comfort In the modern technology industry, competition among rival firms is generally constructive. Firms strive for a competitive advantage over their rivals, primarily by providing better products and support. A number of highly competitive brands in the market have been snapping at the heels of Goliaths like Bajaj Eliminator, Hero Honda Karizma and Kinetic Comet.

7.3

Comparative Analysis in Motorcycle Industry

Legend

Players-->

Comparative Factors Mileage Looks Maintenance After sale service Price Effective sales promotion Finance Options Performance Dealership system Spare Parts Availability Total

Bajaj 2Honda 1 0

Hero

Royal Highest Enfield KineticLowest

16

13

7

5



Comparative Analysis in Motorcycle Industry: Competitors of Royal Enfield bikes have been studied under various parameters and a comparison has been drawn for these in the above excel sheet.



88.1

RecommendationsEntry into other segmentsAs we can see from the data showing the growth trend of motorcycle share in Indian Auto market, a clear indication of rising appetite of the Indian consumers for the motorcycle. Going by the demographics, it can be inferenced that an auto company has the scope of selling bikes in variety of segments. So it is highly recommended for Royal Enfield as a company to venture into other segments as well. But due diligence should be made on brand positioning of the new models, as consumers identify the Royal Enfield brand with the tough and sturdy Bullet product. This concern can be taken care of by launching a new product range under the umbrella of a new brand, specifically for light & sporty bikes Like: Reiko (110 c.c.), RE Steel/Falcon (150-180 c.c.), RE Classic/Sports (250-300 c.c.) etc.

8.2

Aggressive marketing & Advertising for brand reinforcementThis might come to the readers as a surprise that Royal Enfield has started marketing again after 21 years. The last advertisement they did was in 1983. Recently they have started advertising through television media etc. But they need to be aggressive in their marketing campaigns seeing the current market landscape in Indian Auto market.

8.3

Rejuvenating dealership networkIt has been noticed during research that the dealers are not customer oriented and they have become complacent in this regard. This attitude was getting them business as Royal Enfield Bullet is a niche product where they didnt have any competition until now. But off late the scenario has been changing. The marketing is witnessing introduction more powerful and feature rich bikes with affordable tags. So thrust should be made to educate the dealers about the new threat which in reality is an opportunity as well for them. Also equipping them with knowledge and paraphernalia to run sales focused marketing campaigns.

8.4

Product Innovation



This is one product which beat all the shelf life determination. The product has changed little since its introduction decades before. This has been advantageous to an extent, if we speak of Bullet alone. But in the wake of 21st century, the consumers who are so informed about the features esp. the ones who have really propelled the growth of motorcycle share in two wheelers; we can safely conclude that launching variants and new innovative models can definitely fuel growth. The company has introduced certain new models with convention gear structure i.e. left side gear paddles. Features like electric start, disc brakes are also underway, to be introduced in all models. These have been introduced in one model only as of now. Also through technical innovations in engines, they are trying to increase mileage & acceleration of the bikes, the features which are becoming instrumental in decision making of purchasing bikes.

8.5

Financing schemesThis is one company which is still to capitalize on the opening of the banking sector. Their bikes still get up to maximum of 70% finance by most of the banks, which is an inhibiting factor for an average consumer, which was confirmed by our survey. We recommend a two pronged strategy for addressing the same. Diversifying into auto financing like Bajaj. Tie-ups with both private and public sector banks: Our survey showed that the potential consumers of Royal Enfield products are inclined towards public sector banks like SBI. And for the new light /sporty variants or models from Royal Enfield( if they plan to launch), a tie up with private banks would be beneficial due to their proven capability to woo the 21-30 yrs age group segment who are the primary drivers of the motorcycle sales growth esp. for the trendy bikes.



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ReferencesThe following references were used in the study and the author has tried to mention at relevant places about the same in the document.

9.1

Textbooks Marketing management by Philip Kotler

Advertising and consume behavior by Sutherland & Sylvester

9.2

Web References www.bajajauto.com www.royalenfield.com www.eicher.com www.herohonda.com www.icicibank.com

Apart from above, discussions with dealers of Royal Enfield based in Gurgaon (NCR) also formed an integral source of information for this report.



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