High inventories after the festival season and low consumer demand in the current month have forced the two-wheeler market leader by volumes, Hero MotoCorp, to offer discounts for the first time in several years. The company, which has long maintained that its policy is not to offer discounts unlike its rivals, is now offering a loyalty bonus of Rs 1,000 on its entire bike and scooter range for existing Hero owners. Loyalty bonus is a form of cash discount where the existing Hero bike owners would get a discount if they buy a newer product.
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Multiple Hero dealers told FE that retail volumes have taken a sharp dip in December, after strong festive season sales in October and November where it sold a record 1.2 million units. In fact, inventory levels today have climbed to five weeks and in some extreme cases even six weeks, from a three-week normal.
The company has been caught in a tricky situation as it had pushed huge volumes to dealers in October and November anticipating the festive rush. While sales were good then, stocks are still lying with dealers and with sales being tepid in the current month, Hero needs to dispose of them.
Sales in December are generally low, as customers don’t want products with a manufacturing date of the previous year in a new calendar year.
When contacted, a company spokesperson said the company “keeps running activities” targeted at its customers, such as referral programmes for Goodlife members and for customers coming for service at its authorised channels. “The current initiative of Rs 1,000 Loyalty Bonus is in line with these programmes which are applicable only for our existing customers”. It added that “Finance, exchange and loyalty initiatives are not discounts but are efforts aimed at brand building and relationship building”.
Hero, which has traditionally resorted to marketing campaigns like its recent five-year warranty programme to push sales, is expected to contribute 60% of the loyalty bonus offer. The rest will be borne by the dealers, who feel that their margins are now under tremendous pressure. In comparison, rival Honda is offering a Rs 2,000 exchange bonus on the Dream Neo and Yuga, besides a lower 2.99% interest rate.
“I have a margin of Rs 1,150 on the Splendor, which is the biggest chunk of my sales. Now, I have to fork out