CASE STUDY: Rejuvenating the Niche Brand Royal Enfield

Case study written by: HUSENI KAPADIA SEC- G // Seat No. 47 // 12BSPHH010393

CASE STUDY: Rejuvenating the Niche Brand Royal Enfield "We have registered the best ever quarterly total income from operations in Q1 2012... We continue to focus on strategic initiatives that have resulted in effective cost management, improved operational parameters and a differentiated pipeline of products, said Siddhartha Lal, MD & CEO at Eicher Motors Ltd. "There is a deep latent demand for Royal Enfield in India, almost like people want us to win," said Venki Padmanabhan, CEO at Royal Enfield, A Division of Eicher Motors Limited.

Introduction
In 2000, Royal Enfield was facing a loss of Rs 20 crore and was on the verge of either selling or shutting down completely. There was one final chance to revive the loss making Royal Enfield motorcycles by modernising the bikes so as to appeal to a wider customer base. But existing Royal Enfield customers wanted their Bullets just the way they had always been. By modernising, company risked losing traditional fans without possibly gaining any new customers. Though the bikes had diehard followers, there were also frequent complaints about them of engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil leakages. Many found them too heavy, difficult to maintain, with the gear lever inconveniently positioned and a daunting kick-start. Royal Enfield, an Anglo-Indian motorcycle maker who has a cult following and has brought its distinctive bikes into the modern era with new and quieter engines but lacks in fulfilling the increasing demands due to lack of capacity & manufacturing technologies. They have been in continuous production for over 100 years, making them the longest running motorcycle brand in the world, and their success story continues with the introduction of a brand new engine for 2009. The once-sleepy company which was incurring losses year after year sold 74,600 motorcycles in 2011 which was a 40 percent increase in sales from the previous year. All the production was done at its 57-year-old factory in Chennai and thus it invested $30 million in a push to double capacity and upgrade manufacturing technology.

History behind the Dream Machine

The early days of the Royal Enfield date back to the 19th century. What started as a company making lawnmowers is now one of the most desired brands in the world. Way back in the year 1851 George Townsend started a unit manufacturing needles and hooks in a village called Hunt End. Later his son George junior, ventured into manufacturing bicycles named Townsend Cycles which were reputed for its sturdy frame, a character that all Enfield bikes are famous for till date. However in 1890, due to some financial problems, some financiers from Birmingham were approached, but Townsend parted ways with them leaving the company to them. The financiers brought in Albert Eadie and RW smith, who later took control of the company, renaming it in 1891 as the Eadie manufacturing company limited. In 1892, a lucrative contract was won to supply rifle parts to the royal small arms factory in Enfield, Middlesex, after which it was decided to call the first new design of bicycle the Enfield. Also a new company was formed in the name of the Enfield Manufacturing Co Limited. Later on word Royal was added, thus it lead to the beginning of Royal Enfield. In 1893 word Royal Enfield trade mark Made like a gun appeared, which caught the spirit of the time. In 1897 the first mechanical vehicle in quadricycle form was manufactured. In 1901, first Royal Enfield car was built named the Yellow Car, but it proved to be a miss adventure and was stopped. The predecessor of the Bullet was first produced in 1931. This was followed by a four-valve, single-cylinder model named Bullet in 1932. The 1935 G model was the first that assumed the 'modern' look, with vertical cylinder, cast-in pushrod tunnel and eventually fully enclosed valve gear. The single was reintroduced in 1948-49 redesigned by Ted Pardoe, chief draftsman at Enfield in Redditch, England. The strong single cylinder engine allowed it to excel as a trials bike. Royal Enfield motorcycles were being sold in India ever since 1949. In 1955, the Indian government started looking for a suitable motorcycle for its police forces and the army for patrolling duties on the country's border. The Bullet 350 was chosen as the most suitable bike for the job. The Indian government ordered 800 of these 350 cc motorcycles, an enormous order for that time. Thus In 1955, the Redditch Company partnered with Madras Motors in India to form what was called 'Enfield India' to assemble these 350 cc Bullet motorcycle under licence in Chennai. As per their agreement Madras Motors owned the majority (over 50%) of shares in the company. In 1957 tooling equipment was also sold to Enfield India so

that they could manufacture components and start full-fledged production. By 1962, they started making all the components in India. The Indian Royal Enfield uses the 1960 engine (with metric bearing sizes), in the pre-1956 design frame. The Enfield Bullet dominated the Indian highways and with each passing year its popularity kept rising. Still Royal Enfield produces Bullet 350cc and 500cc in very same style. However, with the passage of time, these motorcycles have been altered but remained same look wise. In the year 1994, Eicher group acquired the Enfield India and a year later bought the rights to the name Royal Enfield. At present the company exports motorcycles to twenty countries including United States, United Kingdom, and other western countries in increasing numbers, though the newer versions (2001) with electric start are becoming more popular than the 'classic' version which is little changed from 1955. Now Royal Enfield is the oldest motorcycle company in the world still in production and Bullet is the longest selling bike. The Bullet is still made in the same manner as it was in 1955. However over the years improved metallurgy, modern machining methods and the passage of time has produced stronger, more durable parts, making the Bullet superior, in some ways to the same bike made in 1955.

Pride of Royal Enfield

Royal Enfield is the oldest motorcycle brand in the world and has made a different place in the heart of the Indian two wheeler consumers. Its an iconic brand which has positioned itself as handmade classic powerful bike for Indian roads. It cannot be compared with the other bikes that are simply a convenience for daily office-goers; its for those riders who use their bikes for purposes beyond commuting. The bike range is mainly affordable by the army, the police, and the youths due to its sturdiness & powerful look. The Enfield Bullet is still essentially handmade which utilises very little assembly line activity. Its a rare breed in an age of mass-produced, user-friendly predictability. Royal Enfield calls it as a mechanical motorcycle, handcrafted with love, engineered with purpose, and designed in a way that gives each machine its own unique character. On these lines they launched a campaign known as "Handcrafted in Chennai", which is a tribute to the wonderful people who build, sell, ride and maintain these beloved machines, and is a heartfelt tribute to the city that Royal Enfield calls home. Since its inception as a classic single cylinder bike it has seen minor modifications and major quality improvements. The recent years have seen the Royal Enfield range sport features such as Transistor Controlled Ignition, Disc Brakes, electric start and gas filled shock absorbers. The current range of Royal Enfield motorcycles are built on two engine platforms. The classic cast iron engine and the Lean Burn engine developed for Royal Enfield by AVL Austria. While the Bullet Standard 350 and the Electra 4S and 5S variants use the classic Cast Iron Engine the Machismo and Thunderbird are based on the Lean Burn Aluminium engine (Refer to Exhibit I). The 500cc variant of the Lean Burn engine was launched on the Machismo 500 in June 2007. Royal Enfield have recently introduced the Thunderbird with Twin Spark ignition and integrated gearbox.

Royal Challenge for the Company

The year 2000 could have been decisive in which the company was at declining stage. That was when the board of directors at Eicher Motors decided to either shut down or sell off Royal Enfield but Siddhartha Lal, a third generation member of the Delhi-based Lal family, promoters of the Eicher group of companies stood up to the board asking for another chance to improve the sales of Royal Enfield. Lal believed that Royal Enfield could still be saved as the bike had its reputation, a cult following, an instantly recognisable build, and aspirational value. "The board agreed to give me a chance," says Lal. "It was not because of its confidence in me, but because the business was doing so badly it could hardly get any worse. Lals immediate concerns were to cut costs and streamline the companys finances. But on a broader view he wanted to make Royal Enfield the leader in the higher-end bikes segment by stepping up marketing efforts, widen the distribution network, provide consumers with new, improved models every six months and to stay focused on the needs of the niche segment of 250cc-plus bikes. To start with they focused on making the bike more modernise so as it appeals to a wider customer base. All frequent complaints related to bikes like engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil leakages had to be resolved. Also there were issues like the weight of the bike which discouraged the thin people, its antagonistic gear/brake positions which scared the rest and to kickstart the bike which required powerful legs. Changes had to be made to keep up with the times and make the bike more acceptable, and therein lay the problem. Royal Enfield fans liked the bikes exactly the way they had always been. They needed changes to attract new customers but by doing so risked losing existing ones. Their new ambition has to be achieved without any dilution in brand equity. So the change had to be a calibrated one. The mistaken notion of prospective customers about Bullet and Thunderbird has to be addressed and removed. Royal Enfield was clear that the individuality of bikes should not be compromised. They wanted to retain the bike's rugged looks including the build, the design of the head lamp and the petrol tank. But one question gave Lal and his team many sleepless nights that whether the gears be shifted close to the rider's left foot - as in most bikes - or retained on the right side? The long time users were dead opposed to the change.

Another thorny question was about the engine. The old cast iron engine was a relic of the past. It had separate gear box and oil sump design which made it prone to oil leaks and it seized up very often. Its ability to meet increasingly strict emission norms was also suspect. A modern aluminium engine would eliminate these problems, but it would lack the old engine's pronounced vibrations and beat - which Royal Enfield customers loved. Laws of physics made it impossible to replicate these with the new engine. Royal Enfield decided to both alter the position of the gears and design a new engine. They retained many of the old engine's characteristics - the long stroke, the single cylinder, the high capacity with push rod mechanism. But the new engine, unlike the old, had hydraulic tappets, a new engine arrangement, new metal and fewer moving parts. Obviously, it did not produce the vibrations and the beat of the old, but international experts were consulted and sound mapping carried out for over 1,000 hours to ensure it produced the maximum rhythmic vibrations possible and a beat, which was 70 per cent of the amplitude of the original. The new engine had 30 per cent fewer parts and produced 30 per cent more power than the old, with better fuel efficiency. There were two other problems which also required attention: the quality of some of the components Royal Enfield bikes were using, and the sales experience. To resolve the first problem, shop floor processes were fine tuned, while suppliers were exhorted to improve quality levels. Royal Enfield also embarked on a large scale internal exercise to tone up performance. They formed a field quality rapid action force to bridge the gap between customer expectations and the reality. To enrich sales experience new company-owned showrooms were launched and dealerships were expanded.

Enfield Showrooms Enriching sales experience

Royal Enfield has embarked upon a multi-pronged retail strategy, which will focus on various customer segments. As they want to promote their bikes as lifestyle brand several retail outlets are planned to open which focuses on different customer segments that will enable customers to experience the brand. They wanted to create an ambience which would enable customers to have a hassle-free buying experience & to make them understand about their products in a better way. The company opened the first of such outlet in Chennai, which is targeted at the upwardly mobile young customers (such as IT professionals), who mostly buy a bike to drive around the city or to go out on short breaks over the weekend. The shop floor looks like a road, which is meant to make customers feel as if they are actually driving the bike on the roads. The company also plans to set up a cafeteria in the showroom. The idea behind the cafeteria is to enable bike lovers to get together and share their experiences. The company has tried to align its showrooms with the mindset of customers; therefore, the interiors as well as the facilities in each showroom could vary. Its showroom in Chandigarh, for instance, caters to a different customer segment, and is thus unlike the one in Chennai. This showroom gives a semi-urban feel and is targeted at farmers, and sons and daughters of defence personnel who buy an Enfield just because their father or grandfather owned one. For a farmer in Punjab, possessing an Enfield is a symbol of prestige and power. Thus Royal Enfield is currently doing experiments with this segment-based retail format and its expansion plans would depend on the success of these stores. Another differentiating factor from other motorcycles in sales experience was regarding the test drive of the bike. For all its potential buyers it started giving bikes for an overnight test instead of the traditional 10 mins test which other companies use to provide.

Brand Building - No to traditional advertising

Royal Enfield Motors has over the years stayed away from commercial mainstream. They have focused more on brand building along with the community for what it believes in Taking the long overdue trip! It has correctly identified its target audience and its marketing efforts are focused on them rather than targeting the absolute mass market. Royal Enfield is not bought by users for the sheer objective of either fuel efficiency or delivering a signal-to-signal speed rather its for riders who use their bikes for purposes beyond commuting. So, instead of continuous, bigbudget ad campaigns, Royal Enfield is concentrating on motorcycling activities focused on potential audiences in colleges, institutions and corporations. These activities include adventure rides, weekend drives, motorcycling clubs and so on. Royal Enfield is consciously cutting down on traditional advertising and is focusing instead on cultural activities to leverage the cult status of the brand.

Royal Enfield Turnaround

A new engine has replaced Royal Enfield's antiquated cast iron engine, boosting acceleration, performance, mileage and reliability, and reducing emissions which turned the tide slowly. Engine related problems and oil leakages in Royal Enfield products almost disappeared. By 2008 dealers were reporting lower workloads. Warranty claims fell sharply too. Malfunctioning of the sprag clutch, on which the electric starter depends, declined, for instance, from 5% in 2005-06 to 0.2% in 2010-11. For many motorcycle companies changing the engine is like life and death, there is a very little chance of surviving if they dont get it right. But Royal Enfield has been very successful with the UCE engine. In October 2008, Royal Enfield launched in Germany its newly designed 500cc Classic model - inspired by J2, a 1950 model Bullet - with the new engine. It was a success, admired for its performance and fuel economy. To ride on this success Siddhartha Lal launched this new model in India in November 2009. Initially 350 cc bike Royal Enfield Classic 350 priced at Rs 1.20 lakh was launched which proved a big hit & later its 500 cc variant entered the market. This lead to a rapid increase in sales and there capacity utilization reached 100%. To meet the demand of 1.5 lakh bikes they planned to double their capacity by investing $30 million as the waiting period for deliveries reached six months. Lal is clear that Royal Enfield will not rest on the Bullets laurels. They have understood clearly that its not the same old Bullet that will take them through the ages. Thus to grow in competitive two-wheeler market they need to continuously innovate and move on. This is clear from the new products which the company has launched recently like the new Classic series which is driving growth in a crowded and fast-expanding Indian market

Road Ahead
Royal Enfield has successfully been able to create a brand recall in India, which is similar to what Harley Davidson has done in the United States. The company's focus is beyond the product and that is apparent in the numerous adventure trips and expeditions it organises throughout the year. With demand increasing significantly, the company is setting up new plants, hiring more people and expanding across global markets. More powerful variants are expected too, which would rival Harley Davidson. This will ensure the fan base keeps growing and more people join the bullet fraternity. For a company, success can be defined by three parameters - market share, profitability and category substitution. Royal Enfield will probably have profits but not market share if it aims to be a niche brand. It will also not look at category substitution. That means it will be profitable but not big. This goal is easy to achieve given Royal Enfield's traditional strengths. And the story so far has been good for a brand apart from the stagnant growth due to lack of up gradations in the bikes. But going forward it needs to clock more revenue and profits. The questions before Royal Enfield now: is how it should position & differentiate its bike for its prospective buyers? What are the different offerings for each of its bike? For instance, Bajaj says while its 'Pulsar' is an India bike (urban), its Boxer is a 'Bharat' bike (rural). In this sense the buyers for each of the company's offerings must be clear Also will the niche that appealed yesterday, appeal today? What should Royal Enfield do to get today's aspirers on board? What are the volumes it hopes for in this niche? How to stay profitable there? These will be the questions for tomorrow. Hopefully, the company will able to live up its tag line: Made like a gun, goes like a bullet.

Footnotes:
A loss of Rs 20 crore, http://businesstoday.intoday.in/story/new-royal-enfield-turnaround-anddrive/1/20231.html

Sold 74,600 motorcycles in 2011 which was a 40 percent increase

http://in.reuters.com/article/2012/04/20/india-royalenfield-bullet-motorbikeidINDEE83J02220120420

1893 word Royal Enfield trade mark Made like a gun appeared, 1897 the first mechanical vehicle in quadricycle, first Royal Enfield car was built,
http://www.royalenfield.com/company/history.aspx

Madras Motors owned the majority (over 50%) of shares in the company,
http://www.royalenfield.com/company/company.aspx

exports motorcycles to twenty countries including United States, United Kingdom, and other western countries, http://www.bikedekho.com/royal-enfield.html "Handcrafted in Chennai", http://www.royalenfield.com/company/handcraft-in-chennai.aspx Classic cast iron engine and the Lean Burn engine, http://royalenfieldbullet.wordpress.com/ By 2008 dealers were reporting lower workloads,
http://businesstoday.intoday.in/story/reviving-royal-enfield-bullet/1/19892.html

Sound mapping carried out for over 1,000 hours,

http://boyracer.blogspot.in/2012/05/legends-of-wheels-part-iv-siddharth-lal.html

Enfield Classic 350 priced at Rs 1.20 lakh was launched which proved a big hit,
http://royalenfieldbullet.wordpress.com/

Additional Reading & References:

Video : Royal Enfield adds classic glamour with Chrome & Desert Storm,
http://www.youtube.com/watch?v=tR7He6JlItI

Annual Report of Eicher India for the year 2011

http://www.eicher.in/Downloads%5CAnnualReports%5CAnnual_Report_2011.pdf

Royal Enfield thinks ahead, http://www.autocarindia.com/News/270260,royal-enfield-thinksahead.aspx

Legends of wheels Part IV: Siddharth Lal, http://boyracer.blogspot.in/2012/05/legends-ofwheels-part-iv-siddharth-lal.html

Beyond the bullet, http://www.business-standard.com/india/news/beyondbullet/138979/ Double or Quit,

http://www.4psbusinessandmarketing.com/03122009/storyd.asp?sid=3285&pageno=1

Dream Of Every Eye: Royal Enfield Bikes, http://www.articleclick.com/Article/Dream-OfEvery-Eye-Royal-Enfield-Bikes/1489768

The dream machine and resolving the complaint against it-Royal Enfield, http://customerservice.ezinemark.com/the-dream-machine-and-resolving-the-complaint-against-it-royal-enfield7d34eb23d780.html

Royal Enfield coming up with new models, http://bikes.indiandrives.com/royal-enfieldcoming-up-with-new-models.html

Auto Expo 2012: Beyond the Bullet: Enfield eyes urban market,
http://articles.timesofindia.indiatimes.com/2012-01-06/india-business/30596956_1_royal-enfieldbullet-brand-siddhartha-lal

The royal treatment, http://businesstoday.intoday.in/story/new-royal-enfield-turnaround-anddrive/1/20231.html

Royal Enfield : Royal Indeed, http://marketingpractice.blogspot.in/2005/12/royal-enfieldroyal-indeed.html

Royal Enfield: Royal Enfield Film 2011, http://www.bestadsontv.com/ad/35009/RoyalEnfield-Royal-Enfield-Film-2011