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Introduction of Hero Honda Motors Ltd.

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Today if one talks about Indian two-wheeler industry, reference to


Hero Honda Motors Limited is by default. It is not only the market
leader in the two wheeler segment in India but also is the number
one two wheeler company in the world by volumes. The
company’s name is synonymous with fuel-efficient bikes and
longevity. The company has a presence in all bike segments viz.
economy (CD 100SS, CD Dawn) executive (Super Splendor,
Splendor+) and premium (Karizma, CBZ). Splendor is the most
successful product of the company and accounts for almost 50% of
the company’s turnover.
Background

Hero Honda is a two-decade-old story. It came into existence as a


joint venture agreement between the Munjal family’s Hero Group
and Honda Motor Company (HMC) of Japan, each having 26%
stake in the company. A ten year agreement was first entered in the
year 1984, whereby HMC brought in technical expertise and Hero
Honda brought in local talent to manage all other functions
including marketing, finance, and human resources. The agreement
was once again renewed in 2004 and has been extended till 2014.

Performance vis-à-vis Industry

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The Indian two wheeler industry has seen a paradigm shift from
being a regime of regulation and tight control in the 1980s to a
more liberalised and a competitive present day era. After missing
out on the initial boom in two wheeler segment during the period
of 1993-1996, Hero Honda has emerged as a world leader. The gap
between motorcycles sold by Hero Honda and its closest rival is
approximately 1 m units (23% of industry size). One of the reasons
for the tremendous performance of Hero Honda is the significant
increase of share of motorcycles in the two-wheeler segment, from
42% in FY99 to 77% in FY04. No doubt, that the shift in
preference of Indian populace from scooters and mopeds towards
motorcycles has facilitated the growth of Hero Honda. However its
performance vis-à-vis industry indicates that the performance of
Hero Honda was better than the industry peers, barring two years.
In the seven-year period ending FY04, it has achieved a CAGR of
30% in two-wheeler volumes against 11% of the industry.

Past 5 year performance…

As can be seen from the table below, the company the sales as well
as the profits have increased enormously. The company net sales

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has shown a CAGR of 27% and net profits have shown a CAGR of
39% led by its motorcycle led dominance. The operating margin of
the company has improved by 290 basis point to 16.8%.

(Rs m) FY00 FY01 FY02 FY03 FY04


Motor Cycles sold (m) 0.76 1.03 1.43 1.68 2.07
Net sales 22,464 31,687 44,654 51,017 58,324
Other income 204 221 767 956 1,681
Total revenues 22,668 31,907 45,422 51,973 60,005
Operating profit 3,070 4,285 6,807 8,636 9,801
Depreciation 347 443 510 580 733
PBIT 2,724 3,843 6,297 8,056 9,068
Interest 47 25 15 17 17
PBT 2,880 4,038 7,049 8,995 10,732
Extraordinary Items -34 -268 -105 (149) (7)
Tax 925 1,301 2,315 3,038 3,441
Net Profit 1,921 2,469 4,629 5,808 7,283
Operating profit margin 13.7% 13.5% 15.2% 16.9% 16.8%
Net profit margin 8.6% 7.8% 10.4% 11.4% 12.5%
Number of shares (m) 39.9 199.7 199.7 199.7 199.7
Face Value (Rs) 10.0 2.0 2.0 2.0 2.0
DPS (Rs) 10.0 3.0 17.0 18.0 20.0
EPS (Rs) 48.1 12.4 23.2 29.1 36.5
Fully Diluted EPS (Rs) 9.6 12.4 23.2 29.1 36.5
Strong Fundamentals

As evident from the table company has a strong balance sheet.


Further the company has a consistent record of paying dividend.

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Ratios FY00 FY01 FY02 FY03 FY04
RONW 20.0% 100.0% 100.0% 100.0% 100.0%
ROCE 37.8% 36.5% 58.5% 59.0% 55.5%
Debt Equity (x) 0.1 0.1 0.2 0.2 0.2
Interest coverage (x) 57.8 151.9 417.0 465.7 527.2
Dividend payout 0.9% 0.6% 0.4% 0.4% 0.3%
BVPS 111.1 30.5 33.8 42.5 57.0

The company has clarified about its intention of setting a third


plant in addition to its existing two plants. The company has
embarked upon a green field expansion plan and has earmarked Rs
2 bn for the same. It should be noted that the company has a strong
cash flow position, it generated Rs 9 bn from operation in FY04
HERO HONDA
and is virtually a debt free company.
HONDA (UNICON) (CBZ)
11% 4%

SUZUKI (ZEUS)
5%

TVS
(APACHE)
14% BAJAJ AUTO
(PULSAR)
YAMAHA 62%
(RX 135)
4%

Introduction of Hero Honda Splendor: -

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Hero Honda Splendor

Hero Honda Splendor has come up with all possible features of any
standard bikes. Apart from these features, this bike also has many
advanced and customer friendly features. This bike is equipped
with every safety and comfort features for the convenience of the
biker.

There are found models in Hero Honda Splendor :

• Super Splendor
• Splendor +
• Splendor NXG

Super Splendor

This Bike comes 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.

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For the convenience of the biker, there are few features included
here are trip meter, peep hole, large utility box etc. Some safety
features included here are pass switch and push cancel indicator
switch, muffler with heat shield etc.

It is found in different colors:

• Frost Blue
• Cloud Silver
• Mono Tone Black
• Dual Tone Black
• Blazing Red

Splendor +

4 stroke single cylinder lair-cooled, OHC engine delivers power of


5.5 Kw (7.5PS) @ 8000 rpm . Running with the maximum mileage
of 85 kmph, this bike is giving the optimum satisfaction for long
journey.

Its double cradle frame gives the steadiness in biking. Its wider
1230 mm wheelbase provides the proper base for safer riding.

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Lighting fitting included in it like multi reflector with halogen bulb
makes the biking secured at every time.

It is found in different colors:

• Candy Tahitian Blue


• Hi Performance Red
• Blue Blaze Metallic
• Cloud Silver Metallic
• Chilli Green
• Hi Granite Blue
• Tornado Grey
• Black with Blue Silver Stripe
• Black Calliper Yellow
• Black Old Stripe

Splendor NXG

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Splendor NXG comes with a new engine and pioneering features
and combines stylish looks with a high performance engine. It
features trapezoidal multi -reflector headlamps which is powerful
even at low speeds. This is achieved by powerful battery which
powers the DC high beam in the headlamp and its strength is not
dependent on the engine rpm. Circuitry for the low beam and pilot
lamp has also been enhanced for low variation in intensity arising
from changes in the engine rpm.

It features:
Splendor NXG is available in a range of five attractive colors and
seven stripe combinations.

• New front fairing and a new visor


• New design fuel tank with knee recesses on either side and
features a chrome fuel tank lid.
• New body panels and sleek body graphics.
• New instrument panel

- trip meter housed in speedometer, fuel gauge.

• Stylish tail lamp and die - cast alloy grab rail.

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• 160mm of ground clearance.

Colors

• Candy blazing red


• Force Silver
• Vibrant blue
• Classy maroon
• Black

AWARDS AND RECOGNITIONS


Hero Honda Splendor rated as India's most preferred two-wheeler
brand at the Awaaz Consumer Awards 2006

Best in its class awards for each category by TNS Total Customer
Satisfaction Awards 2006:
• Splendor Plus (Executive)

• CD Deluxe (Entry)

• Pleasure (Gearless Scooters)

Segmentation of Hero Honda Splendor: -

Geographical Segmentation

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Geographic Segmentation calls for division of the market into
different geographical units such as nations, states, regions,
countries, cities, or neighborhoods. 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.

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 in 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.

Psychographic Segmentation

Psychographics is the science of using psychology and


demographics to better understand consumers. In
psychographic segmentation, buyers are divided into different

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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.

Innov
at-ors High Resources
High Innovation
Primary
Motivation

Ideals Achivement Self-expression

Thinker Achiver Experie


s s ncers

Believer
Strivers Makers
s

Low Resources
Low Innovation
Surviv
ors

The four groups with higher resources are:


1. Innovators: - successful, sophisticated, active, “take-
charge” people with high self-esteem. Purchases often reflect
cultivated tastes for relatively upscale, niche-oriented products and
services.

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2. Thinkers- mature, satisfied, and reflective people who are
motivated by ideals and who value order, knowledge and
responsibility. They seed durability, functionality, and value in
products.
3. Achievers- successful, goal-oriented people who focus on
career and family. they favor premium products that demonstrate
success to their peers
4. Experiences- Young, enthusiastic, impulsive people who
seek variety and excitement. They spend a comparatively high
proportion of income on fashion, entertainment and socializing.

The four groups with lower resources are:

1. Believers- conservative, conventional, and traditional people

with concrete beliefs. They prefer familiar products and are


loyal to established brands.
2. Strivers- trendy and fun-loving people who are resource

constrained. They favor stylish products that emulate the


purchases of those with greater material wealth.
3. Makers- Practical, down-to-earth, self-sufficient people who

like to work with the hands. They seek products with a practical
or functional purpose.
4. Survivors- Elderly, passive people who are concerned about

change. They are loyal to their favorite brands.

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Behavior Segmentation: -
In behavioral segmentation, marketers divide buyers into groups
on the basis of their knowledge of, attitude toward, use of, or
response to a product.
Decision Roles: - People play five roles in a buying decision:
Initiator, Influencer, Decider, Buyer and User. Recognition of
the different buying roles and specification of the people who
play these roles for specific products and services are vital for
marketers. This is especially useful for designing the
communication strategy.
Behavioral Variables: - Many marketers believe behavioral
variables-occasions, benefits, user status, usage rate, buyer
readiness stage, loyalty status, and attitude-are the best starting
points for constructing market segments.

Market Targeting: -
Effective Segmentation Criteria
To be useful, market segments must rate favorably on five key
criteria:
 Measurable, the size, purchasing power and characteristics
of the segments can be measured.
 Substantial, The segments are large and profitable enough
to serve. A segment should be the largest possible
homogenous group worth going after with a tailored
marketing program. It would not pay, for example, for an

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automobile manufacture to develop cars for people who are
less four feet tall.
 Accessible, The segments can be effectively reached and
served.
 Differentiable, The segments are conceptually
distinguishable and respond differently to different
marketing-mix elements and programs. If married and
unmarried women respond similarly to a sale on perfume,
they do not constitute separate segments.
 Actionable, Effective programs can be formulated for
attracting and serving the segments.

Evaluating and Selecting the Market Segments

Single- Segment

Concentration

M1 M2 M3

P1

P2
P3

Selective Specialization
M1 M2 M3

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P1
P2
P3

Product Specialization
M1 M2 M3

P1

P2

P3

Market Specialization

M1 M2 M3

P1

P2

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P3

Full Market Coverage

M1 M2 M3

P1

P2

P3

Single Segment Concentration:- The farm equipment division of


Mahindra & Mahindra concentrates on tractors, primarily targeted
at agricultural markets. The Zodiac brand concentrates on formal
shirts for executives and professionals. Specially hospitals focus on
specific therapeutic areas such as cancer care, heart specialty,
neonatal care and gynecology. Through concentrated marketing,
the firm gains a strong knowledge of the segment’s needs and
achieves a strong market presence. Furthermore, the firm enjoys
operating economies through specializing its production,
distribution and promotion. If it captures segment leadership, the
firm can earn a high return on its investment.

Selective specialization: - A firm selects a number of segments,


each objectively attractive and appropriate. There may be little or
no synergy among the segments, but each promises to be

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moneymaker. This multisegment strategy has the advantage of
diversifying the firm’s risk. When Procter & Gamble launched
crest Whitestrips, initial target segments included newly engaged
women and brides to be as well as gay males.

Product specialization: - The firm makes a certain product that it


sells to several different market segments. A microscope
manufacturer, for instance, sells to university, government, and
commercial laboratories. The firm makes different microscopes for
the different customer groups and builds a strong reputation in the
specific product area. The downside risk is that the product may be
supplanted by an entirely new technology.

Hero Honda used Product Specialization for target market of Hero


Honda Splendor.

Market specialization: - The firm concentrates on serving many


needs of a particular customer group. For instance, a firm can sell
an assortment of products only to university laboratories. The firm
gains a strong reputation in serving this customer group and
becomes a channel for additional products the customer group can
use. The downside risk is that the customer group may suffer
budget cuts or shrink in size.

Full market coverage: - The firm attempts to serve all customer


groups with all the products they might need. Only very large
firms. Such as Microsoft (software market), General motors’

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(vehicle market), and coca-cola (nonalcoholic beverage market),
can undertake a full market coverage strategy. Large firms can
cover a whole market in two broad ways: through undifferentiated
marketing or differentiated marketing.

Additional considerations
Two other considerations in evaluating and selection segments are
segment-by-segment invasion plans and ethical choice of market
targets.

Segment-by-segment invasion plans: - A company would be wise


to enter on segment at a time. Competitors must not know to what
segment(s) the firm will move into next. Segment-by-segment
invasion plans are illustrated three firms, A, B, and C, have
specialized in adapting computer systems to the needs of airlines,
passenger transport, and goods transport companies. Company A
meets all the computer needs of airlines.

Ethical choice of market targets: - marketers must target


segments carefully to avoid consumer backlash. Some consumers
may resist being labeled. Singles may reject single. Serve food
packaging because they don’t want to be reminded they are eating
alone. Elderly consumers who don’t feed their age may not
appreciate products that identify them as “old” market targeting
also can generate public controversy.

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Positioning: -
Positioning is the act of designing the company’s offering and
image to occupy a distinctive place in the minds of the target
market, the goal is to locate the brand in the minds of consumers to
maximize the potential benefit to the firm. A good brand
positioning helps guide marketing strategy by clarifying the brand’
essence, what goals it helps the consumer achieves, and how it
does so in a unique way. Everyone in the organization should
under- stand the brand positioning and use it as context for making
decisions.

Competitive Frame of Reference


A starting point in defining a competitive frame of reference for a
brand positioning is to determine category membership-the
products or sets of products with which a brand competes and
which function as close substitutes. Competitive analysis will
consider a whole host of factors-including the resources,
capabilities and likely intension of various other firms-in choosing
those markets where consumers can be profitably served.

SEGMENTATION, TARGETING & POSITIONING

From the current segmentation, targeting & positioning and


consumer surveys we found that our client has targeted the
following segments:

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♦ Congested areas of urban cities.
♦ Males/Females between the age group of 18-36
♦ Middle class people , mostly officials & executives
The client analysis from our questionnaire it was found that our
client has targeted the right segment
HHML & TVS is overlooking one feature in bike which is its low
maintenance cost and reliability (i.e. less chances of breakdown)
which is absent in its competitors. Therefore, in order to meet the
sales target, two options are available with the client; one is to
redesign the bike and second is to reposition the bike as “Bike with
one time investment”. Since redesigning of bike may involve a big
task and huge investment therefore we recommended repositioning
the bike.

Product:-
Core Product: -
The core product or benefit of Hero Honda Splendor is Travelling
and saving the time by reach on desire place at right time.
Basic Product: -
The basic product of Hero Honda splendor are Engine, Handle,
Shockers, Wheels, Gear box and chain set etc.
Expected Product: -
The expected products of Hero Honda splendor are: -
1. It should be 5 gear gear box.
2. It should be 90 Kmpl mileages.
3. It should be 120 Km/hour Maximum speed.
4. It should be disk brake or power brake.
5. It should be steel body.

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Augmented Product: -
The augmented products of Hero Honda Splendor are: -
1. It provides monthly check up for decrease the pollution.
2. It provides fast service of the product.

Pricing Strategy: -

Penetration Pricing: -
The price charged for products and services is set artificially low in
order to gain market share. Once this is achieved, the price is
increased. This approach was used by France Telecom and Sky
TV.
Hero Honda Used penetration pricing strategy because that time
Hero Honda use National Segment and low income persons so they
used penetration strategy.
Price Skimming: -
Charge a high price because you have a substantial competitive
advantage. However, the advantage is not sustainable. The high
price tends to attract new competitors into the market, and the price
inevitably falls due to increased supply. Manufacturers of digital
watches used a skimming approach in the 1970s. Once other
manufacturers were tempted into the market and the watches were
produced at a lower unit cost, other marketing strategies and
pricing approaches are implemented.
Premium pricing, penetration pricing, economy pricing, and price
skimming are the four main pricing policies/strategies. They form

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the bases for the exercise. However there are other important
approaches to pricing.
Promotion: -
Below the Line Promotion: -
‘Below The Line is a common technique used for touches and feel
products. Those consumer items where the customer will rely on
immediate information than previously researched items. Below
The Line techniques ensure recall of the brand while at the same
time highlighting the features of the product.
Above The Line Promotion: -
Above the line (ATL) is an advertising technique using mass media
to promote brands. Major above-the-line techniques include TV
and radio advertising, print advertising and internet banner ads.
This type of communication is conventional in nature and is
considered impersonal to customers. The ATL strategy makes use
of current traditional media: television, newspapers, magazines,
radio, outdoor, and internet.
Hero Honda used Above the Line Promotion because in the Above
the Line promotion co. members used advertisement through
Radio, T.V., Newspaper and Other media communications.

Place: -

Geographical Placing: - Geographical placing of the product has


divided into 4 markets and these are: -

1. Local
2. National

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3. Regional
4. International

Hero Honda used National Market for sale the Hero Honda
Splendor.

BIBLIOGRAPHY

• www.herohonda.com
• Marketing management, 13th edition, Kotler, Keller,
Koshy, and Jha, Pearson Education.
• www.marketingteacher.com
• www.scribd.com

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