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Market Changes Report

MARKET CHANGES

A Market Change is the tendency of a market to move in a particular direction over a period of time.

Changes are what allow business to capture profits. Whether on a short- or long- term time frame, in an overall changing market or a ranging environment, the flow from one price to another is what creates profits and losses.

The ability to predict market changes depend on knowing what factors may influence or guide its direction. There are certain forces that may help shape markets and determine what direction a certain trend may be heading. Changes in these major factors would give a business insight on how a current trend acts or how future trends may occur.

There are five major factors that cause both long-term trends and short-term fluctuations. These factors are as follows:

  • 1. Government Policies.

  • 2. International Transactions.

  • 3. Speculation and Expectation.

  • 4. Supply And Demand.

  • 5. Technological Advancement.

Governments hold much sway over the free markets. Fiscal and monetary policy has a profound effect on the financial marketplace. By increasing and decreasing interest rates the government and Federal Reserve can effectively slow or attempt to speed up growth within the country. This is called monetary policy. If government spending increases or contracts, this is known as fiscal policy, and can be used to help ease unemployment and/or stabilize prices. By altering interest rates and the amount of dollars available on the open market, governments can change how much investment flows into and out of the country. Government news releases, such as proposed changes in spending or tax policy, as well as Federal Reserve decisions to change or maintain interest rates can have a dramatic effect on long term trends. Lower interest rates and taxes encourage spending and economic growth. This has a tendency to push market prices higher, but the market does not always respond in this way because other factors are also at play. Higher interest rates and taxes, for example, deter spending and result in contraction or a long-term fall in market prices.

The flow of funds between countries impacts the strength of a country's economy and its currency. More the money, that is leaving a country, the weaker is the country's economy and currency. Countries that predominantly export, either physical goods or services, are continually bringing money into their countries. This money can then be reinvested and can stimulate the financial markets within those countries. International transactions, balance of payments between countries and economic strength are harder to gauge on a

Market Changes Report

daily basis, but they play a major role in longer-term trends in many markets. The currency markets are a gauge of how well one country's currency and economy is doing relative to others. A high demand for a currency means that currency will rise relative to other currencies. The value of a country's currency also plays a role in how other markets will do within that country. If a country's currency is weak, this will deter investment into that country, as potential profits will be eroded by the weak currency.

Speculation and expectation are integral parts of the financial system. Where consumers and investors believe the economy will go in the future impacts how we act today. Expectation of future action is dependent on current acts and shapes both current and future trends. Sentiment indicators are commonly used to gauge how certain groups are feeling about the current economy. Analysis of these indicators as well as other forms of fundamental and technical analysis can create a bias or expectation of future price rates and trend direction. The analysis and resultant positions taken by traders and investors based on the information they receive about government policy and international transactions create speculation as to where prices will move. When enough people agree on direction, the market enters into a trend that could sustain itself for many years. Trends are also perpetuated by market participants who were wrong in their analysis; being forced to exit their losing trades pushes prices further in the current direction. As more investors climb aboard to profit from a trend, the market becomes saturated and the trend reverses, at least temporarily.

Supply and demand for products, currencies and other investments creates a push-pull dynamic in prices. Prices and rates change as supply or demand changes. If something is in demand and supply begins to shrink, prices will rise. If supply increases beyond current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as demand increases or decreases. Supply and demand affects individuals, companies and the financial markets as a whole. In some markets, such as the commodity markets, supply is determined by a physical product. Supply and demand for oil is constantly changing, adjusting the price a market participant is willing to pay for oil today and in the future. As supply dwindles or demand increases, a long-term rise in oil prices can occur as market participants outbid one another to attain a seemingly finite supply of the commodity. Suppliers want a higher price for what they have, and a higher demand pushes the price that buyers are willing to pay higher. All markets have a similar dynamic. Stocks fluctuate on a short and long- term scale, creating trends. The threat of supply drying up at current prices forces buyers to buy at higher and higher prices, creating large price increases. If a large group of sellers were to enter the market, this would increase the supply of stock available and would likely push prices lower. This occurs on all time frames.

Business technology has revolutionized the way companies conduct business. Small businesses can implement business technology and level the playing field with larger organizations. Small businesses use computers, servers, websites and personal digital products to develop competitive advantages in the economic marketplace. Small business owners should consider implementing technology in their planning process. This allows owners to create operations using the best technology available. Technology allows small businesses to reach new economic markets. Rather than just selling consumer goods or services in the local market, small businesses can reach regional, national and international markets. Retail websites are the most common way small

Market Changes Report

businesses sell products in several different economic markets. Websites represent a low-cost option that consumers can access 24/7 when needing to purchase goods or services. Small business owners can also use Internet advertising to reach new markets and customers through carefully placed web banners or ads.

Trends are generally created by five major factors: governments, international transactions, speculation/expectation, supply and demand and technological advancement. These areas are all linked as expected future conditions shape current decisions and those current decisions shape current trends. Government affects trends mainly through monetary and fiscal policy. These policies affect international transactions which in turn affect economic strength. Speculation and expectation drive prices based on what future prices might be. Finally, changes in supply and demand create trends as market participants fight for the best price.

Relationship between Market and Industry:

Defining a relationship between Market and Industry, Market act as Business Environment for any Industry or company .Understanding the environment within which the business has to operate is important for running a business unit successfully at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies. Hence it is important to learn about the various components of the business` environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects and the technological aspects, etc. The success of every business depends upon adapting itself to the environment within which it functions. For example, when there is a change in the government polices, the business has to make the necessary changes to adapt itself to the new policies. Similarly, a change in the technology may render the existing products obsolete, as we have seen that the introduction of computer has replaced the typewriters; the colour television has made the black and white television out of fashion. Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product, e.g., the demand for jeans reduced the sale of other traditional wear. All these aspects are external factors that are beyond the control of the business. So the business units must have to adapt themselves to these changes in order to survive and succeed in business. Hence, it is very necessary to have a clear understanding of the concept of business environment and the nature of its various components.

The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may

Market Changes Report

be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors and technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

FEATURES OF A BUSINESS ENVIRONMENT

Features of a business environment can be summarised as follows:

(a)

Business environment is the sum total of all factors external to the business

firm and that greatly influences their functioning.

(b)

It covers factors and forces like customers, competitors, suppliers,

government, and the social, cultural, political, technological and legal conditions.

(c)

The business environment is dynamic in nature that means, it keeps on

changing.

(d)

The changes in business environment are unpredictable. It is very difficult to

predict the exact nature of future happenings and the changes in economic and

 

social

.

(e)

Business Environment differs from place to place, region to region and country

to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

Market Changes Report

Market Changes Report IMPORTANCE OF BUSINESS ENVIRONMENT There is a close and continuous interaction between the

IMPORTANCE OF BUSINESS ENVIRONMENT

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:

  • a) Determining Opportunities and Threats:

The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.

  • b) Giving Direction for Growth:

The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

  • c) Continuous Learning:

Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

Market Changes Report

  • d) Image Building:

Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

e)Meeting Competition:

It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.

f) Identifying Firm’s Strength and Weakness:

Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

Types of Business Environment:

Confining business environment to uncontrollable external factors, it may be classified as follows:

  • a) Economic environment

  • b) Non-economic environment.

The economic environment includes economic conditions, economic policies and economic system of the country. Non-economic environment comprises social, political, legal, technological, demographic and natural environment. All these have a bearing on the strategies adopted by the firms and any change in these areas is likely to have a far-reaching impact on their operations. Let us have a brief idea about each of these areas of business environment.

Market Changes Report

  • a) ECONOMIC ENVIRONMENT:

The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:

  • 1. Economic Conditions:

The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

  • 2. Economic Policies:

All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are:

  • 2.1. Industrial policy

  • 2.2. Fiscal policy

  • 2.3. Monetary policy

  • 2.4. Foreign investment policy

  • 2.5. Export –Import policy (Exim policy)

The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein.

  • 3. Economic System:

The world economy is primarily governed by three types of economic systems, viz.

  • 3.1. Capitalist economy

  • 3.2. Socialist economy

  • 3.3. Mixed economy.

India has adopted the mixed economy system which implies co-existence of

public sector and private sector.

  • b) NON-ECONOMIC ENVIRONMENT:

Market Changes Report

The various elements of non-economic environment are as follow:

1. Social Environment

The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly.

  • 2. Political Environment

This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organisation and its operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind up operations in India in late seventies. Again the trade union activities also influence the operation of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive business environment, trade unions are now showing great maturity and started contributing positively to the success of the business organisation and its operations through workers participation in management.

  • 3. Legal Environment

This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include:

  • a. Companies Act, 1956

  • b. Foreign Exchange Management Act, 1999

  • c. The Factories Act, 1948

  • d. Industrial Disputes Act, 1972

  • e. Payment of Gratuity Act, 1972

  • f. Industries (Development and Regulation) Act, 1951

  • g. Prevention of Food Adulteration Act, 1954

  • h. Essential Commodities Act, 2002

  • i. The Standards of Weights and Measures Act, 1956

  • j. Monopolies and Restrictive Trade Practices Act, 1969

  • k. Trade Marks Act, 1999

  • l. Bureau of Indian Standards Act, 1986

Market Changes Report

  • m. Consumer Protection Act, 1986

  • n. Environment Protection Act

  • o. Competition Act, 2002

Besides, the above legislations, the following are also form part of the legal environment of business.

  • a. Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises.

  • b. Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities.

  • c. Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. For example, in USA and many other countries electrical appliances are designed for 110 volts. But when these are made for India, they have to be of 220 volts. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organisations. Now a days infact, no firm can afford to persist with the outdated technologies.

  • d. Demographic Environment: This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example, a country where population rate is high and children constitute a large section of population then, there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps.

  • e. Natural Environment: The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic

Market Changes Report

condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

Market Changes – How do they impact a company?

Serious boaters, and especially sail boaters, will imply that plotting a course to the destination is critical but not enough to get there. There is a need to compensate for winds and currents. One needs to know about tide changes and current flows and how they impact your course or they might find themselves at an unintended destination. Business owners need to understand the currents of the market and make smart decisions about when it is good to go with the current and when it is better to head into the current. If you have been watching the economy over the past 2 years, you know that there are many mixed signals. Some markets have been growing and others that are going backwards. These conditions are tough to navigate in. The question is how to gain new insights from the trends, seeing change others are not seeing it so you gain a competitive advantage, and then mapping the trends onto your business so you can identify the opportunities that are right for you. Talking about the market changes and their impact on the business, let see how have they effected our economy and business activities over a period of time. The economic environment of business in India has been changing at a fast rate mainly due to the changes in the economic policies of the government. At the time of independence, the Indian economy was basically agrarian with a weak industrial base. To speed up the industrial growth and solve various economic problems, the government took several steps like state ownership on certain categories of industries, economic planning, reduced role of private sector, etc. The Government adopted several control measures on the functioning of private sector enterprises. All these efforts caused a mixed response. There was growth in net national product, per capita income and development of capital goods sector and infrastructure. But rate of industrial growth was slow, inflation increased and government faced a serious foreign exchange crisis during eighties. As a result, the government of India introduced a radical change in economic policies in 1991. This policy abolished industrial licensing in most of the cases, allowed private participation in most industries; disinvestment was carried out in many public sector industrial enterprises and opened up the economy considerably. Foreign Investment Promotion Board was set up to channelize foreign capital investment in India. Let us discuss the developments under three heads, viz., (a) Liberalisation, (b) Privatisation, and (c) Globalisation

a. LIBERALISATION

Market Changes Report

Liberalisation refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of business enterprises. It includes:

i. Abolishing industrial licensing requirement in most of the industries; ii. Freedom in deciding the scale of business activities; iii. Freedom in fixing prices of goods and services; iv. Simplifying the procedure for imports and exports; v. Reduction in tax rates; and vi. Simplified policies to attract foreign capital and technology to India. Through this liberalisation process, Indian Economy has opened up and started interacting with the world in a big way. This has resulted in easy entry of foreign business organisations in India. This has further resulted in stiff competition and efficiency. Ultimately, liberalisation has helped us in achieving a high growth rate, easy availability of goods at competitive rates, a healthy and flourishing stock market, high foreign exchange reserve, low inflation rate, strong rupee, good industrial relations, etc.

  • b. PRIVATISATION Privatisation refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the post liberalised period. The issues of privatisation include:

i. Reduction in the number of industries reserved for the public sector from

  • 17 to 8 (reduced further to 3 later on and the introduction of selective

competition in the reserved area; ii. disinvestment of shares of selected public sector industrial enterprises in order to raise resources and to encourage wider participation of general public and workers in the ownership in business; iii. Improvement in performance through an MOU system by which managements are to be granted greater autonomy but held accountable for specified results. In India, as a result of these steps, the post liberalisation phase has witnessed a massive expansion of the private sector business in India. You can have an idea of their expansion from the fact that the total capital employed in top 500 private sector companies

rose from Rs. 1,39,806 crores in 1992-93 to Rs. 2, 34, 751 crores in 1994-

  • 95 (an expansion of 68% in just two years).

  • c. GLOBALISATION Globalisation means ‘integrating’ the economy of a country with the world economy. This implies free flow of goods and services, capital, technology

Market Changes Report

and labour across national boundaries. To achieve these objectives of globalisation, the government has adopted various measures such as reduction in custom duties, removal of quantitative restrictions or quotas on exports and imports, facilitating foreign investment and encouragement of foreign technology. These measures are expected to achieve a higher rate of growth, enlargement of employment potential, and reduction of regional disparities.

Impact of these changes on an industry sector:

Indian Two-Wheeler Industry: A Perspective

Automobile is one of the largest industries in global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognised as one of the drivers of economic growth. During the last decade, well¬-directed efforts have been made to provide a new look to the automobile policy for realising the sector's full potential for the economy. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realise its potential in the country. The liberalisation policies have led to continuous increase in competition which has ultimately resulted in modernisation in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.

Evolution of Two-wheeler Industry in India

Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. According to the figures published by SIAM, the share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003- 04. This high figure itself is suggestive of the importance of the sector. In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery. The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry

Market Changes Report

resulted in: (a) several firms operating below minimum scale of efficiency; (b) under-utilisation of capacity; and (c) usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.

However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalised and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two-¬wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.

Background

In 1991, the Indian government switched its economic orientation to allow market forces the freedom to work. Prior to "liberalization", India had a policy of national self-sufficiency and non-reliance on imports or foreign economic investment that was designed to protect domestic markets from competition. Protective tariffs, import quotas, exchange rate controls, and regulated licensing for capital goods discouraged innovation, cost reduction, and the acquisition of technological capabilities, causing inefficiencies, sluggish export performance, and slow economic growth. For example, vehicle production was closely regulated by a licensing system that controlled output, models, and prices. Vehicle manufacturers installed production facilities under licensed capacity (as approved by the government), which controlled output irrespective of market demand. Government also controlled capacity expansions which constrained vehicle manufacturers to offering limited models and severely restricted consumer choices. Finally, India's central and state governments indirectly regulated the prices of vehicles by levying excise duties, registration charges, state taxes, and "octroi" (additional taxes imposed by state governments for the transportation of goods in state territory).

By the mid-1990s, the Indian government had liberalized foreign exchange and equity regulations to encourage foreign direct investment. The average

Market Changes Report

import-weighted tariff (that had been 300 per cent before liberalization) steadily decreased from 85 per cent in 1992 to 20.3 per cent in 1997 (Alamgir, 1999). As the country settled down to the realities of liberalization, there was a quantum leap in economic growth, which was reflected in the automobile industry. The government's relinquished control, de-licensing, and deregulation of the automobile industry fueled growth with the five-year period (1992-1997) showing an overall increase of more than 20 per cent a year for the number of vehicles manufactured.

Liberalization efforts also increased middle class families' disposable incomes by stimulating credit purchases. Indian consumers became more demanding of specific products and services forcing firms to enhance product quality, increase variety, and shorten product development processes to remain competitive and many Indian manufacturers found that existing supply chain systems were not configured to meet the increasing requirements of consumers in a newly liberalized economy. BMI Motorcycles was no exception.

The impact of liberalization on BMI (Bajaj Motors India Ltd.)

In the 1980s, BMI manufactured and distributed conventional motorized "two- wheelers" (scooters and mopeds), which were the major modes of transportation in India during that period. BMI was a stand-alone, vertically integrated, and independent company. It owned many small factories located near the main plant that manufactured most of the sheet-metal and machined components for its products and only sourced proprietary parts like headlights and tires from outside suppliers. BMI had a significant share of what was essentially a seller's market in the 1980s - with just a few competing firms that were not producing enough motorized two-wheelers to meet consumer demand. However, in the early 1990s, the growth in foreign direct investment and the increased purchasing power of Indian consumers brought about by the liberalization of the Indian economy motivated BMI to enter into a collaborative venture with a foreign firm to produce state-of-the-art, 100cc four-stroke engine technology motorcycles.

These motorcycles had superior aesthetics, higher fuel efficiency, more power, and required less maintenance than those made by BMI's competitors. Thus, BMI's new line of motorcycles exceeded customer expectations in terms of overall value and variety, raising the technological bar in the Indian automotive

Market Changes Report

industry. The arrival of these new motorcycles heralded a shift in consumer preferences from scooters to motorcycles. Unit sales of motorcycles increased from 470,000 in 1994 to 1.8 million in 2000, while unit sales of scooters only increased from 870,000 to 1.25 million over the same period. However, high growth in the motorcycle segment of its business also created operational problems for BMI.

ICAR Research highlights

The Indian motorcycles market had total revenue of $7,246.5 million in 2010, representing a compound annual growth rate (CAGR) of 7.7% between 2006 and 2010. Market consumption volumes increased with a CAGR of 11.1% between 2006 and 2010, to reach a total of 11,530.5 thousand units in 2010.

The performance of the market is forecast to accelerate, with an anticipated CAGR of 12.4% for the five year period 2010 - 2015, which is expected to drive the market to a value of $12,979.1 million by the end of 2015.

MARKET SHARE

Table 5: India motorcycles market share: % share, by value, 2010

Company % Share

Yamaha Motor Co., Ltd. 46.8%

Hero Honda 29.4% Bajaj Auto Limited 17.7%

TVS Motor Company Ltd 2.2% Other 3.8%

Total 100%

Figure 5: India motorcycles market share: % share, by value, 2010

Market Changes Report

Market Changes Report Source: D A T A M O N I T O R The

Source: D A T A M O N I T O R

The Indian motorcycle market is currently exhibiting a high level of growth, which provides ample revenue growth for companies, thus reducing rivalry. Overall, rivalry within the Indian motorcycles market is assessed as moderate.

The rivalry is boosted by the presence of large, international incumbents:

together the top four companies account for approximately 96.2% of the market’s share by volume, meaning the market is extremely concentrated. This fact means that buyers face a relatively low concentration of players, indicating a higher level of choice. There are relatively large numbers of buyers within the motorcycle market, which coupled with a high level of product differentiation weakens buyer power furthermore.

Buyer power is weakened by high level of product differentiation and customer loyalty with respect to dominating brands. For new entrants to the market, setting up a production facility involves large capital outlay thus constituting significant entry barrier and high fixed cost. Furthermore the global tightening of emission standards is ramping up costs as motorcycle re-designs are required.

Such a trend can trigger the demand for newer more economical engines involving higher costs of R&D spending.

Market Changes Report

Other means of transportation constitute the main substitutes within the market, and the threat of substitution is largely dependent upon the necessity of motorcycle use to the end-user supported strongly by various underlying factors including

India’s rising per capita GDP

Increasing rural demand

Growing urbanization,

Swelling replacement demand

Increasing proportion of cash sales

The less measurable metric of improved consumer sentiment.

MARKET FORECASTS

Market value forecast

In 2015, the Indian motorcycles market is forecast to have a value of $12,979.1 million, an increase of

79.1% since 2010.

The compound annual growth rate of the market in the period 2010–15 is predicted to be 12.4%.

Market Changes Report Other means of transportation constitute the main substitutes within the market, and the

Market Changes Report

DEMAND DRIVERS FOR THE 2W INDUSTRY

Market Changes Report DEMAND DRIVERS FOR THE 2W INDUSTRY Rise in GDP per Capita has increased

Rise in GDP per Capita has increased affordability of 2W.

India’s per capita real GDP growth of 7% (CAGR) over the last six years (refer Chart 1) has contributed substantially towards raising the standard of living of households, which in turn has been one of the key drivers of growth for the country’s automobile industry. However, income growth is likely to have been uneven across the different income deciles. Income at the lower end of the distribution scale, which comprises the 2W target segment2, is likely to have grown at a rate below the overall per capita income growth rate. Yet economic well-being has led to a significant increase in the number of households coming within the 2W target segment over the past few years. Incidentally, this scale- up is almost similar to the expansion in the domestic 2W industry size (by volumes) during this period.

Market Changes Report DEMAND DRIVERS FOR THE 2W INDUSTRY Rise in GDP per Capita has increased

Market Changes Report

Also, significantly, 2W purchase prices and operating expenses (inflation adjusted) are now around 36% lower than they were a decade back, considering that vehicle prices have not escalated much over the years, indicating increasing in affordability of 2Ws (refer Chart3).

Market Changes Report Also, significantly, 2W purchase prices and operating expenses (inflation adjusted) are now around

Under-penetrated market as compared to other emerging markets to provide adequate headroom for future growth.

The penetration rates differ between India’s rural and urban areas, with the rural areas being under-penetrated by a factor of 3x as compared to larger cities. That said, assuming that households having annual income less than Rs. 90,000 do not have the ability to own a 2W, the existing household 2W penetration in India in the addressable income segment of households (i.e. income greater than Rs. 90,000) is estimated to be around 74%. Prima facie, this appears to be a large figure and suggests that penetration- driven growth may be difficult for the 2W industry to accomplish over an extended time horizon. However, the fact that in absolute terms there are still 28 million households at present in the primary target income segment that do not own a 2W, the scope for penetration-led future growth continues to be reasonably large. Additionally, the social trend in favour of nuclear families coupled with expected expansion of the target income segment pie going forward is expected to further increase the number of households which could be potential targets for the 2W industry.

Favourable demographic profile to continue to feed the consumption cycle.

As per ICRA’s estimates (based on Census 2001 and Census 2011 data), around 33% of India’s population of 1.2 billion (in 2011) belongs to the age bracket of 20-40 years. On conversion of even 20% of this youth population into 2W

Market Changes Report

owners, a demand for ~80 million 2W (6.8x domestic 2W sales in 2010-11) is estimated to get generated over the medium term. Further, with the youth population estimated to increase to 229 million by 2015E, a cumulative increase of 11% over 2011, the 2W consumption cycle appears strongly sustainable. This age group is also characterised by a combination of earning power and high spending propensity, which would increase the likelihood of conversion of potential ownership into actual ownership.

Interplay of growing urbanization and rising rural incomes augurs well for domestic 2W demand.

Urbanization has drawn people living in India’s rural and semi-rural hinterland to cities and towns at a steady pace (refer Table 3). The need for mobility in most Indian cities and towns therefore has increased substantially, yet the proliferation of public transport system has not kept pace. This is where the utility of a 2W as the most affordable mode of private transport comes to the fore.

The interactions between rural and urban centres could be part of a virtuous cycle, as cities have benefits beyond their boundaries. This is validated by studies which show that rural populations adjoining large urban centres have around 20% higher income than the rural average. Thus, the legacy of lower penetration levels in the rural market, scarcity of public transport infrastructure and the rising income levels would be positive triggers for rural 2W demand, going forward. At the same time, rising salary levels in urban areas, shortening replacement cycles, increasing traffic congestion in cities would be factors augmenting 2W demand in urban areas.

Replacement demand to be a key contributor to 2W industry volumes going forward

According to estimates, around 50% of the total domestic sales of 2W are now made to first-time buyers5, 30% to customers looking to upgrade from their existing vehicle, and 20% to buyers seeking a second vehicle for the household. The break-up suggests that currently around 50% of the sales in the domestic 2W market are made to replacement buyers. Industry estimates also suggest that the 2W ownership cycle has now shrunk to less than five years. Add to this the healthy growth in sales to first-time buyers in recent years, driven in particular by sales to the rural market, the replacement opportunity could only increase in the future. From the consumer perspective, although replacement involves fresh capital spending, the inducement of upgrading to an improved technology 2W, having better performance, features and more attractive styling; complemented with increased spending propensity are expected to be the prime ingredients feeding replacement demand.

Market Changes Report

INFLUENCE OF SUPPLY SIDE FACTORS

Large additional capacity creation necessary to meet the expected strong 2W demand.

To cater to the expected rise in future 2W demand, many OEMs have announced capacity expansion plans comprising of both greenfield as well as brownfield investments, which is expected to make capacity utilization revert to its historical levels. As per ICRA’s estimates, to achieve industry volumes of 21- 23 million units by 2015-16 (domestic and export), the OEMs will need to invest around Rs. 4,500 Crore over the next five years for expanding their in-house capacity.

Entry of new players into the Indian market has enriched product offerings and brought-in new technologies:

From the OEMs’ perspective, sustenance of market position in the future would require greater investments in new product development and brand building as Indian customers mature and become even more demanding. Eventually, this is expected to bring-in multiple benefits from the consumers’ standpoint including (a) more product options to choose from while making a purchase decision (b) increase in segmentation and creation of new sub-product categories (c) greater competition amongst OEMs giving rise to innovations and better value-for- money offerings; all being supporting conditions for supply to tango with demand.

Distribution network strengths will continue to matter in the growth chase

To get the best returns from the distribution network, an OEM strategy that balances the necessity to expand customer touch points while ensuring adequate dealer profitability and minimal channel conflict is crucial. Ideally, the distribution network of an OEM in a city should be large enough to provide both sales as well as service convenience to customers; yet it should be small enough such that every outlet could have optimum capacity utilization.

Availability of finance no longer critical for sales culmination

Amongst various factors contributing to the strong volume growth recorded by the 2W industry over 2009-10 and 2010-11, the shift in the purchase pattern of buyers has been one of the important features. Till 2006-07, around 50% of all 2Ws purchased were financed. This share has now come down to around 25% in

2010-11.

2W remains amongst the most economical modes of commuting

Market Changes Report

In June 2010, the Central Government had announced its decision to deregulate petrol prices such that they could reflect international rates. An increase in petrol price by Rs. 2 per litre is estimated to result in an increase in monthly fuel bill by around Rs. 80 for a heavy 2W user having monthly usage of 2,500 km. The impact would accordingly be lesser for a consumer having moderate monthly usage.

Domestic Market

Entry segment of motorcycles shrinking in size as OEMs pursue profitable growth through other 2W segments.

The Entry segment has faced continual volume pressures in the domestic market over the last several years and was also the worst hit during the credit squeeze in H2, 2007-08 and the economic slowdown of 2008-09. Although sales volumes in this segment have remained flat over 2009-10 and 2010-11, the segment’s share in the domestic 2W market has steadily declined from 43% in 2005-06 to 16% in 2010-11. Several factors have contributed to the waning importance of the entry segment in the Indian 2W market. These include, The gradual shift in preference of consumers in favour of the more feature-rich Executive segment Reluctance of organized financiers to increase credit exposure on this segment The OEMs’ own strategy of reducing focus on this relatively less profitable segment.

Executive segment remains the largest volume generator for the 2W industry

Motorcycle models with a price between Rs. 40,000-50,000 comprise the Executive segment, which is largely concentrated around the 100-125 cc models. The segment has benefited the most due to up-trading from the Entry segment consequent to the growing sophistication of customers, besides the steady and secure replacement demand. Accordingly, the segment’s share in the domestic motorcycles segment has risen from 48% in 2005-06 to 65% in

2010-11.

Although the Executive segment has high competitive intensity reflected in the presence of a large number of brands, Hero Honda remains the clear market leader on the strength of its Splendor and Passion series of bikes that have maintained a dominant position over the years.

Premium segment expected to continue being the fastest growing in the motorcycles market

Motorcycle models with a price of over Rs. 50,000 comprise the Premium segment, which consists largely of greater than 150 cc engine capacity bikes. The Premium segment has been the fastest growing one over the last five years having recorded a volume CAGR of 27%, a period in which its segment share increased to 17% in 2010-11 from 9% in 2005-06.

Unlike Executive segment motorcycles, which are positioned as commuter products and family bikes providing basic transportation, the positioning of the Premium segment bikes is anchored on performance attributes. While Executive segment bikes typify higher fuel economy and lower operating costs, the

Market Changes Report

features of Premium segment bikes are characterized by visual appeal, higher speeds, heady acceleration and superior ride, handling and braking. At the edge, however, such clear distinction in terms of target customers has now blurred.

International Market

Overseas markets capturing the interest of most 2W OEMs in India

Exports offer strong growth opportunity to Indian companies, given India’s low- cost manufacturing capabilities and reliable quality10. 2W exports from India reported a CAGR of 25% over the period 2005-06 to 2010-11 to reach 1.5 million units in 2010-11. BAL is the largest 2W exporter from India, followed by TVS, with both companies exporting to a large number of countries. Together, BAL and TVS accounted for 79% of all 2W exports from India in 2010-11 and the managements of both companies consider exports a key component of their overall growth plans.

FINANCIAL OUTLOOK

Rising raw material costs remains the biggest challenge for sustaining profit margins

Raw materials remain the biggest component in the cost structure of OEMs accounting for around 85% of total costs. Thus, the Operating Profit Margins (OPM) of OEMs are quite sensitive to movement in prices of major raw materials like steel, aluminium and rubber. After a period of benign raw material prices in 2009-10, prices of most commodities showed an upward trend in 2010-11. Despite the strong demand, OEMs were able to pass on the increase in input costs to customers only partially; but could mitigate the adverse impact to some extent through internal cost reduction and focus on changing product mix towards superior margin products.

New entrants to the market:

Entry to the Indian motorcycles market can be achieved by starting a new company, diversifying an existing company’s operations into motorcycles manufacturing or in the case of foreign companies by beginning to export to the country. Newcomers are lured by strong market growth promising a fair share of revenues. However, setting up production facilities involves large capital outlay thus constituting significant entry barrier and high fixed costs. Additionally, leading motorcycle brands such as Honda, Yamaha, Bajaj Auto or TVS Motor enjoy an exceptionally high level of brand recognition, which is reflected in their high sales volumes and market dominance. Due to the existing strength of premium motorcycle brands it is difficult for new entrants to introduce their products into the market.

Additionally, the entry of new players in the industry, multitude of new model/ variant launches, growing distribution reach, cheaper ownership costs on a relative basis are expected to be some of the other prime movers for industry growth over the medium term.

Market Changes Report

Threats from substitutes:

Substitutes to the motorcycles market consist of other types of vehicles or means of transport. The threat of substitution with respect to the motorcycles market is dependent upon the necessity of motorcycle use to the end-user. In this case, the threat from substitutes is higher, as consumers are more likely to continue using other vehicles or public transport, than purchase a motorcycle which may be viewed as a luxury rather than a necessity. Another alternative threatening motorcycle manufacturers is offered by used motorcycles. These may be sold privately, or by dealers that also offer new motorcycles, and will almost always be cheaper than a new vehicle of similar specification.

Study of market changes in context of Indian automobile companies.

Hero Honda SPLENDOR:

Hero Honda launched its flagship model Hero Honda Splendor in the year 1994 and it brought name and fame to the company instantly after the launch. Only after 6 years of its launch, Splendor was declared World No. 1 largest selling single two wheeler model. The basic model of the Hero Honda Splendor was having only standard equipment only but technology was outstanding as a result the bike made records after records of selling. Bike production in India is growing day by day. Earlier nobody preferred to go on bikes as that was era of scooters. Many companies came forward to produce bikes but many of them were 2 stroke. Hero Honda launched this vehicle which has revolutionized Indian streets with most running bike "Splendor". Reason for the sale was good looks, high durability, low cost and best fuel mileage. In the year 2003, Hero Honda upgraded the basic model of Hero Honda Splendor and launched a revamped version named as Hero Honda Splendor Plus which also saw a big success. The company announced to sell the basic and improved model side by side but discontinued the former silently after sometime. Now only Hero Honda Splendor Plus version is available in market.

THE SHIFT TOWARDS THE BETTER MILAEGE ASPIRATIONS:

The computer education boom and the ITES/BPO era increased individual income levels in that particular age group to unthought-of levels. As 18-25 age group was no longer much of a liability for basic sustenance by family members, individual disposable incomes started to find their way not only into the consumer products market, but also in the capital markets, giving a much needed impetus to investment and return scenario. A better understanding of the money issue at a young age imprinted the importance of the fuel factor in the young consumer’s mind. This smarter consumer was now feeling the heat of rising fuel bills, and it was then that the two stroke appeal started diminishing. The consumer now wanted a motorcycle that offered decent power delivery, but most importantly, had the inherent quality of saving some greenback. Hero Honda, as a casual product, had already established itself as a manufacturer of fuel efficient bikes and hence had a very important factor in its favor – perception.

Market Changes Report

Concept: Marginal Utility

For normal products, the law of diminishing marginal utility applies; that is, with increasing usage, a consumer perceives lower and lower additional utility from the product. Hero Honda, due to multiple innovations in Splendor, succeeded in reducing the normal diminishing marginal utility curve to lower levels than those of competitors, thus ensuring that competing products ran out of business faster than Splendor did; in other words, they ensured that the PLC (Product Life Cycle) of Splendor was more elongated than that of competing products. The Hero Honda Splendor, right from the day of its inception, has been a super seller and enabled the parent company to explore never before levels of production dynamics. Though the Splendor motorcycle was not able to achieve as high a cult status as that enjoyed by the erstwhile leader Yamaha RX 100, it eventually did become the largest selling motorcycle in the entire globe. Right from the fresh designed facia of the motorcycle to the ergonomically fitted tank merging with the side profile, the bike was as classy and contemporary as 100 cc bikes could be. The Japanese connection gave Hero Honda access to varied Honda technologies, indigenization of which gave a very balanced single tube frame mated to a dependable and efficient motor. The whole Indian bike commuter fraternity was hooked; Splendor was selling at a very fast pace. The utility of the product was much higher than the money spent on it (the cost of the bike, its maintenance and fuel). High fuel average meant more savings and this stuck a chord with the consumer. It was exactly what the consumer wanted.

Concept: Market Perception

And the surprising part was, those were not only the 18-25 age groups which were spreading Splendor sales in the country, but also significant segments that were formerly ‘scooter’ customers. The diminishing utility of side engine scooters predominantly from the Bajaj stable was an important cause as well. The middle class Indian too started losing interest in the scooter; as the product was plagued by ‘too long in the tooth’ dilemma along with poor image. Commuters started seeing an all-round commute means in the Hero Honda Splendor as the bike not only offered a higher image but offered higher fuel

Market Changes Report

average helping in savings-pivotal for a middle class Indian family man. A need to move further up the value chain enticed more and more two wheeled commuters to seriously take a look at the Splendor. The no nonsense bike was seriously turning positive market perception towards itself, as it was the only well rounded product on offer. With growing sales numbers the Splendor started making a brand for itself, with a bonus feather in their cap being the good resale value – a factor important for the middle income & youth segments. By 1995, Splendor was seen as the smartest proposition in terms of ‘investment’.

Marketing Strategy of Hero Honda

Segmentation of Hero Honda Splendor: -

  • a) Geographical Segmentation:

Geographic segmentation calls for division of the market into different geographical units such as nations, states, regions, countries, cities, or neighbourhoods. In the South Asian context, geographic segmentation assumes importance due to variations in consumer preferences and purchase habits across different regions, across different countries, and across different states in these countries.

  • b) Demographic Segmentation:

In Demographic Segmentation, we divide the market into groups on the basis of variables such as age, family size, family life cycle, income, occupation, education, religion, race, generation, nationality and social class. One reason demographic variables are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure. Even when we describe the target market in non-demographic terms (say, by personality type), we may need the link back to demographic characteristics in order to estimate the size of the market and the media we should use to reach it efficiently.

  • c) Psychographic Segmentation:

Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. Values and lifestyles significantly affect product and brand choice of consumers. Religion has a significant influence on values and lifestyles. The strict norms that consumers follow with respect to food, habits or even dress codes are representative examples in this regard.

Market Changes Report

THE NEW VARIENTS OF SPLENDOR :

Splendor +:

The bike was launched in 2003 with additional graphics and comfort seating.

Super Splendor:

This Bike was launched in 2005, with 125 cc new generation quantum core engine with an output of 9 bhp (6.7 kw). Its relaxing seating arrangement with other comfort features like less strain while clutching and declutching, low noise and less vibration engine etc, makes it more market friendly bike.

Splendor NXG:

Launched in year 2008 Splendor NXG comes with a new engine and pioneering features and combines stylish looks with a high performance engine.

CBZ

Indian bikers were subjected to 100 cc bikes, until Hero Honda launched the CBZ in 1999. At that time, there was nothing in India which was as powerful on 2-wheels as the CBZ. This bike will go into history for starting the bike revolution in India, which was later (in 2001) taken over by Bajaj with the launch of the Pulsar twins. The Hero Honda CBZ was way ahead of other bikes at that time, but Bajaj Auto had already started work on the Pulsar before the launch of the CBZ. The Hero Honda CBZ is no more what it used to be, with the company changing both its own name and the name of the product. Known as the Hero MotoCorp Xtreme today, the CBZ which was launched more than a decade ago, no longer creates that attraction in its new avatar.

Till 2004, Hero Honda sold the CBZ unchanged and in that very year they launched the CBZ Star, which received new graphics and a change in the carburetor (from the sliding type carburetor to a conventional CV carburetor). The change in carburetor was done to increase the mileage of the bike, but led to the loss of the original CBZ’s USP – its fantastic pick up. Most of the parts of the CBZ were imported, which resulted in increase in the cost of the bike. The Pulsar 150 was atleast 20% cheaper and sales of the CBZ started to decline. Hero Honda eventually discontinued the CBZ in September 2005. After two years, the CBZ Xtreme was launched, which was an entire new bike, with a new 149 cc engine. After that, the CBZ mania was over and the no longer did the CBZ command as much love and respect as the original model.

What was so special about the CBZ then. It was the first 150 cc motorcycle and had classic Honda CB styling. It was powered by a 156.8 cc, single-cylinder, air- cooled, SOHC engine which was fed by a Keihin slide type carburetor. The over- sqaure engine complied with Euro 1 norms (there was no Bharat 1 norms, it only came with Bharat II). The Hero Honda CBZ was the first 4-stroke bike in India to

Market Changes Report

feature a 5-speed gearbox. With a weight of 138 kgs, the CBZ would sprint to 60 km/h in 5 seconds and hit a speedometer indicated 125 km/h (true speed of 113 km/h). Braking duties were taking care by a 240 mm Nissin front disc and 130 mm rear drum. The fuel tank would hold 12.5-liters of petrol, giving the CBZ a range of almost 600 kms. The CBZ features telescopic hydraulic forks at the front and swing arm with dual hydraulic damper and 5-step adjustment at the rear.

The Case of Bajaj Pulsar

Introduction:

Bajaj Pulsar is a motorcycle brand owned by Bajaj Auto in India. The two wheeler was developed by the product engineering division of Bajaj Auto in association with Tokyo R&D and later with motorcycle designer Glynn Kerr. Currently there are four variants available -with engine capacities of 135 cc, 150 cc, 180 cc, 200 cc and 220 cc. Previously, it was also offered with a 200 cc DTS-i oil cooled engine, which now has been discontinued. Instead a new version Pulsar 200NS was launched in 2012.With an average monthly sale of around 86,000 units in 2011, Pulsar has a market share of 47% in its segment. By April 2012, more than five million units of Pulsar were sold.

History:

Before the introduction of the Pulsar, the Indian motorcycle market trend was towards fuel efficient, small capacity motorcycles (that formed the 80–125 cc class). Bigger motorcycles with higher capacity virtually did not exist (except for Enfield Bullet). The launch and success of Hero Honda CBZ in 1999 showed that there was demand for performance bikes. Bajaj took the cue from there on and launched the Pulsar twins in India on 24 November 2001. Since the introduction and success of Bajaj Pulsar, Indian youth began expecting high power and other features from affordable motorcycles.

The project was faced with internal resistance, reservations by Mckinsey and doubts on its effects on Bajaj's relation with Kawasaki. The project required approximately 36 months for completion and costed Bajaj Rs 1 billion.

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Evolution

2001

The original Pulsar came with a 150 cc air-cooled, single-cylinder, petrol, spark- ignited four-stroke engine which made 13 HP of maximum power. They featured a single spark plug to ignite the air-fuel mixture fed from a carburetor, simple spring shock absorbers, round headlamp dome and 1,265 mm wheelbase. Disc brakes as standard equipment were a novelty in Indian motorcycles of the early 2000s. Other standard features were parking lights and an aircraft-type fuel tank lid. The design of the motorcycle was inspired by a wide open muscular human arm.

The 180 cc version made 15 HP of maximum power and came with a twin-tone horn, which was optional equipment on the 150 cc version. Electric Start (ES) was offered as standard feature in the 180 cc model and optional on the 150 cc model.

2003

The second generation Pulsars featured Bajaj Auto's newly developed DTSi technology, which increased the power rating of both versions by 1 hp (0.75 kW) each and also increased fuel economy. This model also introduced a new headlamp assembly, 1,320 mm wheelbase, and standard twin-tone horn and trip meter.

2005

In 2005, Bajaj launched another upgrade of the Pulsar. The bike was offered with 17-inch (430 mm) alloy wheels as standard option, and the stance was also lowered by about 12 mm. It was the first time any bike maker in India had offered 17-inch (430 mm) profile wheels at the rear. The fuel tank now had a capacity of only 18 litres. The power output was now further increased to 13.5 hp (10.1 kW) @ 8500 rpm for the 150 while it increased to 16.5 hp (12.3 kW) @ 8500 rpm for the 180. The rear shock absorbers were now gas- filled Nitrox absorbers.

2006

Bajaj introduced another version of Pulsar (UG III). New features included: pilot lamps separated from the main headlamp, turn indicators with clear lenses and amber bulb, self-cancelling turn indicator switch, flush LCD screen with digital read-out of key vehicle data, non-contact speed sensor, non-contact backlit switches, twin-stripe LED tail-light assembly and side panels altered for a sharp,

Market Changes Report

tapering-towards-the-rear look. The engine had increased torque availability, reduced vibration and improved gear shift feel. cc variants.

2007

In July 2007, Bajaj began selling the Bajaj Pulsar 220 DTS-Fi and Pulsar 200 DTS- i, the former featuring fuel injection and oil cooled engines, a digital dash, and modern styling. This bike has some features which are totally new to the Indian market, like the fuel injection itself, rear disc brake and clip-on handlebars (the first two only available in the 220 model).

2008

The new Pulsar has many firsts to its credit. It comes equipped with an oil cooler, which helps control engine oil temperatures at sustained high speeds and rpms, thus ensuring more stable engine oil viscosity.

The new digital console is an advanced version of the latest Pulsar family. Apart from the Digital Odometer, Digital Speedo Meter, Digital Fuel Gauge and two Digital Trip Meters, the console on the 200 cc Pulsar DTS-I has indicators for the air filter condition, engine temperature, battery voltage and oil level.

2009

Bajaj released the UG IV (fourth upgrade) versions of the Pulsar 150 and Pulsar 180 in April 2009. The upgrades for the Pulsar 150 included an all-black theme, tank scoops similar to those on the Pulsar 200, a 3D Pulsar logo, and a changed electrical system (full DC). Power also increased from 13.5 HP to 14.09 HP (at 8,500 rpm).

Electrical enhancements like auto head light switch-off after few seconds of turning the engine off to protect the battery, self cancelling turn signals, icon illumination (horn icon, indicator icon, engine cut off icon, etc.), side stand warning light, duel digital trip meter, low fuel warning light (which also flashes when the engine is revved too hard), and low battery indicator are common features among all the variants.

The Pulsar 180 received upgrades like wider tyres, split seat, tank scoops, clip-on handlebars, 3D Pulsar logo, swing arm suspension borrowed from Pulsar 200, and thicker forks. The power was increased to 17 PS.

Bajaj launched a carbureted version of Pulsar 220 on June 2009, tagging it as "the fastest bike in India". It also discontinued the production of Pulsar 200 on July 2009.

Bajaj also introduced a new Light Sports version of Pulsar named as Pulsar 135LS. It is the first bike in India to contain 4-valve DTS-i technology. It consists 4 smaller valves rather than 2 standard bigger valves, styling also is changed

Market Changes Report

and looks become more aggressive. The bike is ARAI certified for 68.5 km/l and weights only 122 kg.

2010

Bajaj released the UG 5 (fifth upgrade) versions of the Pulsar 150. The upgrades for the Pulsar 150 included an clip-on handlebars like those in Pulsar 135LS. Power also increased from 14.09 HP to 15.06 HP (at 9,000 rpm).

A naked version of Pulsar 220 is also launched, named as Pulsar 220S (Street Fighter) which retains everything from Pulsar 220 except the front fairing. Front fairing is similar to Pulsar 180/150. Old Pulsar 220 is now named as Pulsar 220F.

2011

Bajaj released Pulsar 135LS, 150,180 and 220F.

2012

2012 marked the entry of Bajaj's latest design, the Pulsar 200NS (NS standing for Naked-Sport). The bike has a revised 200 cc liquid cooled engine, which produces 23.17 bhp (17.28 kW) at 9,500 rpm and 18.3 N·m (13.5 lbf·ft) at 8,000 rpm. It has a new triple-spark design, along-with a new four-valve SOHC. The company claims a top speed of 136 km/h (85 mph). It does not have fuel injection like its predecessor, the Pulsar 220Fi. It has a petal disk brake on the front, a disk brake on the rear wheel, and a gas-charged monoshock. It is expected to be launched by mid-end April 2012.

Pulsar’s various variants:

PULSAR DTSi

The Pulsar twins are claimed to have taken the market by storm since their launch in Nov'01. The DTSi engine consists of the Digital Twin Spark ignition, Digital CDI unit, TRICS III, CV Carburetor all state of the art features that bring the digital biking to a new level. The result is consistent & responsive engine output for varying load and speed conditions at different levels of acceleration.

PULSAR 150/180

Targeted at the youth segment, the Bajaj Pulsar has been designed and styled as a mean masculine robust machine with dazzling looks and technically advanced mechanism that offers great performance. The symmetries between the muscular fuel tank, side panels and the rear panels give a very distinctive feel to Pulsar.

Features: Sporty Looks, Supreme Performance, Riding Comfort, Safety.

Market position:

Market Changes Report

The Bajaj Pulsars form the most popular motorbike product in the newly emerging 150+ cc class of Indian two wheeler market .Bajaj have been regularly making alterations to it to make the motorbike look fresh at all times.

HOW BAJAJ PULSAR WENT PAST HERO HONDA CBZ IN THE PERFORMANCE BIKE MARKET

MARKETING STRATEGY USED FOR PULSAR:

Selecting the price objective:

The objectives were survival, maximum market share and product-quality leadership. For these purposes the features were set as that of CBZ but the prices were kept a bit lower, which helped Pulsar to enter the market and gain maximum market share.

Maximum Market Skimming:

Skimming is referred to as selling a product at a high price; basically companies sacrificing sales to gain high profits. This is employed by companies in order to reimburse their cost of investment put into the original research of the product. This strategy is often used to target early users of a product/service because they are relatively less price sensitive than others. Early users are targeted either because their need for the product is more than others or they understand the value of the product better than others. In any case, this strategy is employed only for a limited period of time as a

Market Changes Report

way to recover most of the investment of a product. This is the reason why the prices of Pulsar were dropped within two years and consumer surplus of early adopters were captured.

Determining the Demand Price sensitivity:

Due to the presence of many bikes in the same price range the elasticity of demand was very high. Hence with the decrease of prices, the amount of sales increased in volume. The amount of sales in 2009 was 165049 units. Along with other market conditions, with the introduction of a lower version at a cheaper cost sales increased to 269488 units in 2010.

Analyzing competitors cost, prices and offers

From the mistakes of Hero Honda CBZ, Bajaj Pulsar was able to take share away from the market pioneer of power bikes in India, and command the price premium in the process because of its performances advantages- smoother driving experience.

Selecting a pricing method

Bajaj did a mix of pricing methodology of Going Rate Pricing and Value Pricing. It set its price slightly lower than its competitor following going rate pricing without compromising on any of the features provided by its competitor to attract value-conscious customers.

Selecting the Final Price

While selecting the final price, Bajaj did set its price lower than its competitor to share the risk of launching a new product in the market.

Promotional Pricing

  • 1. Special event prices were offered during festival seasons.

  • 2. Zero interest financing was offered for some speculated period to attract customer.

  • 3. Longer payment terms were provided to the customer so that the EMI would be less.

  • 4. The free service contracts were offered at the time of purchase.

Market Changes Report

Differentiated Pricing

Market Research was done to differentiate among different income groups and their demand for Pulsars of different versions.

Launch of DTS-i engine:

The second generation Pulsars featured Bajaj Auto's newly developed DTS-i technology, which increased the power rating of both versions by 1 bhp (0.75 kW) each and also increased fuel economy.

Conclusion

The challenge for Bajaj Pulsar was to keep coming up with proprietary products that fuel its business model, which is based on innovation and R&D. Pulsar’s pricing strategies include setting the price high at the start of launching a new product. After gaining some profits from its early customers who are often fascinated with every new technology such as DTS-i, Pulsar seems to reduce its prices by introducing different versions in order to make it affordable and popular among other competitive products. Basically, the company adapts prices according to the customers’ ability to pay. It came up with different variants to cater to the needs of cost to value customers. Also, the concept of Definitely Male was well accepted by the people and Bajaj came out with some astonishing ads. Though the DTSi technology was new, people accepted it very well. It easily conveyed the message it wanted to.

Main Reasons for Pulsar’s success:

By 1997-98, Bajaj Auto produced a mind-boggling 1 million scooters. But, the mid-nineties also witnessed a dramatic shift in the preference of Indian consumers, from stolid scooters to bolder bikes. By 1999, motorcycles had overtaken scooter sales for the first time in the country. Bajaj Auto was at crossroads — motor bikes accounted for only a fraction of two-wheelers sold, and inflexible systems, manpower and mindsets all contributed to the company being relegated from top dog to the No 4 position, behind Hero Honda, Yamaha and TVS Suzuki.

Pulsar was not just a bike for Bajaj Auto, It was a do or die product. It was one single product that virtually saved the company. By 2001, by when the Pulsar was ready for launch — the 150 cc and 180 cc models hit the road in November

Market Changes Report

— Hero Honda ruled the roost with 100 cc bikes. Almost the entire bike market was 100 cc, and Bajaj fast losing ground to Hero Honda.

Offer exactly the opposite of what the leader was:

The Bajaj Auto strategy was clear-cut; If Hero Honda was talking about fuel efficiency, Bajaj made power its proposition. In one word, what Hero owns is mileage, and the one word Bajaj owns is power, thanks to the Pulsar. It redefined motorcycles in India. Before the launch of Pulsar, people never thought of power bikes; it was something that never crossed their mind. It was a breakthrough product.

The focus on power and muscular styling had to be the product differentiator, even as the rest of the industry was riding on the more predictable platforms of fuel efficiency and price. This led to a shift from the familial 'Hamara Bajaj' slogan to the brash, individualistic, testosterone-dripping 'Definitely Male.'

Relying on Line stretching:

Bajaj Auto has relied on line stretching instead of offering products with price steps Example: Bajaj offers the Pulsar 180cc and Pulsar 220 cc at the higher-end of the premium segment and the Pulsar 135cc at the lower end of the premium segment leveraging an established existing brand (i.e. Pulsar 150cc).

Innovation and Enhancement:

Bajaj kept enhancing and upgrading all their variants and models, and innovated new features.

For e.g.

Initially in 2001, Pulsar came with a 150 cc air-cooled, single-cylinder, petrol, spark-ignited four-stroke engine which made 13 HP of maximum power. Looking at market trends, Bajaj kept upgrading their variants from UG I to UG 5 (current version for 150 cc) . Also, in current versions new features like pilot lamps separated from the main headlamp, turn indicators with clear lenses and amber bulb, self-cancelling turn indicator switch, flush LCD screen with digital read-out of key vehicle data, non-contact speed sensor etc were innovated .

What made the PULSAR a better bet than CBZ?

Market Changes Report

Better Mileage

Cheaper Price

Smart Marketing Strategy