"Innovation is of prime importance to us"

Written by Malabika Sarkar | Malabika Sarkar | Alokananda Chakraborty | Updated: Jun 9 2009, 10:15am hrs
Anil Dua
Bucking the slowdown in the two-wheeler market in India, Hero Honda reported a 12% growth in 2008-09 and kept up the momentum by posting an unprecedented sales of 3,70,575 units for the month of April 2009. The companythe largest two-wheeler maker in the world in terms of volumessays that while competitors were cutting down on marketing costs in an effort to improve bottomline, it kept the faith and pumped in money into sprucing up its portfolio and adding to its distribution muscle. In this interview to FEs Alokananda Chakraborty and Malabika Sarkar, Anil Dua, senior vice-president, marketing and sales, Hero Honda Motors, analyses its performance for the last fiscal and its plans for the year ahead.

Youve begun 2009-10 with a bang, even as the domestic two-wheeler industry continues to reel under high interest rates, credit squeeze and overall recessionary trends. Where has this growth come from

We have begun the new financial year 2010 with robust growth in the month of April. This is in keeping with the growth trajectory that we maintained last year to close the fiscal 2009 with 12% growth.

The last couple of years have been quite tough for the two-wheeler industry due to the uncertainty over interest rates and an overall credit squeeze. For us, the growth has been coming from all segments and across geographies. This has been possible due to several strategic initiatives that we have taken. We keep refreshing our entire product portfolio with regular frequency to meet the fast-evolving needs of customers, as a result of which we now have winning brands across segments that have been driving volumes. For example, CD Deluxe in the entry segment, Splendor+, Passion Plus, Splendor NXG and Glamour in the deluxe segment and Hunk, CBZ X-treme and Karizma in the premium segment have been our share drivers.

We have also been investing on brand building through innovative marketing initiatives by strengthening our association with properties in cricket, entertainment and adventure. These activities have helped us tremendously to connect with the youth and reach out to our target group. All these initiatives have been backed by an aggressive network expansion to reach customers in far-flung corners of the country.

We have grown our network from 2,000 a little over two years ago, to over 3,500. Finally, we have also been tapping into the rural and semi-urban markets through our rural programmes.

In recent months Hero Honda has been saying it can still protect its margins and grow by focusing on rural and semi-urban markets. What are the key pillars of your rural strategy

We have a strong presence in the urban markets, and we keep strengthening this presence with our premium models such as Hunk, CBZ X-treme and Karizma. Similarly, we have always had a lot of volumes coming from the rural markets, with several initiatives specifically targeted at the rural customer. Now we have created a dedicated rural vertical with the vision Har Gaaon Har Angan, which we set up in late 2007 to explore markets in the rural and semi-urban areas, under which we are consolidating all these initiatives and take them forward. The primary objective is to reach out to as many potential customers in the rural areas as possible. As part of this strategy, we are mapping the demographic and psychographic landscape of rural India. It is helping us in formulating region-specific modules to reach out to potential customers at a very local level. We are also reaching out to opinion leaders (sarpanch, pradhans etc) in the rural areas and leveraging regional festivals. Local markets such as village haats and mandis are also being tapped into in order to reach potential customers.

To what extent would you ascribe your performance to government initiatives in the sector over the last few years

The government did take a number of steps in the right direction to stimulate demand, improve liquidity in the system and contain inflation. The governments stringent controls have also held us in good stead when we compare ourselves to the rest of the world.

While the governments stimulus package has resulted in lowering prices of two-wheelers, the industry continues to reel under the pressure of continuing high interest rates and liquidity crunch.

The government has also played its role in creating the right environment and stimulate demand in the rural areas through its development schemes such as Bharat Nirman Yojna and NREGS programmes. Consumer demand has also been fuelled by the governments loan waiver, the Sixth Pay Commission and the increase in Central Government Dearness Allowance as this helped boost spending.

Do you foresee any major fluctuation in raw material prices over the next couple of quarters

Commodity prices have remained stable in the past two quarters. I expect the trend to continue in the next couple of quarters too. However, it will be interesting to see the commodity price movement from the third quarter onwards.

You have a full-fledged launch pipeline ready for the year. How important is product innovation in your overall strategy

Being a customer-centric company, product innovation is of prime importance to us. We have winning brands across segments, which is a contributing factor for our strong performance with 58% share in the domestic two-wheeler market. Our strategy is to keep refreshing the product range and maintain a balanced portfolio across segments.

Tell us about your recent launches and the response from the market.

We launched nine modelsincluding new products, variants and refreshesacross segments in fiscal 2009. With the new all-muscle Hunk, and a sporty and stylish new CBZ X-treme, we strengthened our market presence in the 150-cc segment. We also introduced self-start in the 100-cc range with our new launch Passion Pro. The power start variants were also introduced in CD Deluxe and Splendor NXG. In addition, we also refreshed our successful models Glamour, Glamour FI, Splendor NXG and Pleasure. The response to all these new launches has been very encouraging.

You have announced plans to expand the network of dealership touch points by 500 locations to 4,000 before the year is over. Where do you start and how have you planned the rollout

The expansion of our touch-points is an ongoing process. To support our initiatives, we are aggressively expanding our distribution network. We have grown our network over 50% over the last three years, from 2,000 to over 3,500 now, to significantly expand our reach. This includes authorised dealerships, service and spare-parts outlets, and dealer-appointed outlets across the country, which will now be taken up to 4,000 by the end of this year.

Two-wheeler financing, or the lack of it, is a major bugbear of most two-wheeler companies in India. Your comment.

The two-wheeler industry has suffered in the past couple of years due to the uncertainty over interest rates and an overall credit squeeze. We have tied up with several regional rural banksGrameen Banksto make financing options available to our customers.

At the local level, there have also been tie-ups with co-operative banks for financing.

What is the capacity of your new Haridwar plant and how do you expect its commissioning to beef up your performance for 2009-10

We have been steadily increasing production at our Haridwar plant. Currently, the daily output of our Haridwar plant is a little more than 4,000 units per day. The tax benefits accruing from the Haridwar plant have certainly helped our bottomline.

Post the launch of the Nano, and even before that, analysts and four-wheeler makers are saying that it is the two-wheeler market that will be hit hard by the Tata car. Whats your view

As we have always maintained, small cars would have a minimal impact on two- wheeler sales in India. The Indian consumer is highly price-conscious and assigns importance to factors such as acquisition costs (cost of acquisition of an entry-level two-wheeler is about one-third of an entry-level small car), fuel cost, maintenance cost and other sundry charges including registration, insurance, parking, toll taxes etc. For the customer, fuel efficiency of the vehicle continues to be a significant influencer in his purchase decision.

According to latest estimates, only 23% of urban households and less than 10% of rural households own a two-wheeler. These penetration levels are only a fraction of the levels in other developing South East Asian Countries.