MKTG/219

ICMR Center for Management Research

Hero Honda’s Rural Marketing Initiatives in India
This case was written by Barnali Chakraborty, under the direction of Vivek Gupta, ICMR Center for Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

2009, ICMR. All rights reserved. To order copies, call 0091-40-2343-0462/63 or write to ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email info@icmrindia.org.

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Hero Honda was the result of a joint venture between Japan-based Honda Motor Company Limited (HMCL) and the India-based Hero Group. Samar Srivastava. Going forward. INTRODUCTION In April 2009.” http://www. Ramnath. Hero Honda Motors Limited. MD and CEO. “They [Hero Honda] have positioned themselves as a rural India story. India – based IDFC SSKi Securities provides corporate finance and institutional securities services.” http://www. April 23. The company said that the motorcycle would be launched specifically for rural consumers and was likely to be priced between Rs.com. 15. Hero Honda Motors Limited. January 18.com. or INR refers to Indian Rupee.thehindubusinessline. “Hero Honda Boost Production at Haridwar. 12.Anil Dua. “This (a low-price bike) has been on our horizon for a long time but we haven‟t been able to come up with a solution till now. This makes us optimistic about the market. 2009.” http://www.livemint.. Sindhu Bhattacharya. in March 2009. Sindhu Bhattacharya.dnaindia. Mumbai. “Hero Honda Working On a „Nano‟ Bike‟. May 08. Hero Honda started its journey with the launch of Hero Honda CD-100 motorcycle. said. Priyanka Vyas.”1 . Vice President at IDFC-SSKI Securities Limited3. we continue to work on this.” http://www. 2009. Just because we have an enhanced rural focus. Senior Vice President for Sales and Marketing. a substantial industry growth is expected to come from these markets.0005. at just the right time.com.Pawan Munjal. 2009. “Hero Honda‟s Motorcycle Diary. “Whatever we bring should certainly have a significant price advantage.”4 . But this is not the end and we hope to come up with a solution. Hero Honda is focusing a lot on rural markets. April 23. 1 US$ ≈ INR 48. “Hero Honda Working On a „Nano‟ Bike‟. “The penetration of two-wheelers in rural areas is estimated to be less than 10 per cent and around 25 per cent in urban areas.Hero Honda’s Rural Marketing Initiatives in India “The majority of India lives in rural areas and the government is pumping in a lot of money through various programmes. 1 .60. the first four-stroke motorcycle to be launched in 1 2 3 4 5 6 7 “Hero Honda Looking to Gain Market Share.” http://in.”2 . Rs. 2009. it does not mean that rural customers can be offered products which do not stand the test of performance or durability.”7 Started in 1984. March 26.com.dnaindia.com. Managing Director and Chief Executive Officer of Hero Honda. in January 2009. the company would not compromise on its quality and safety.reuters. rural customers need sturdier vehicles (than urban ones).S. In fact. He said.”6 Munjal said that although the new motorcycle would be made available at a low cost. in May 2009. 2009. 2009. Pawan Munjal (Munjal). As of June 25.500 and Rs.. India-based Hero Honda Motors Limited (Hero Honda) announced that it was planning to develop a low-priced motorcycle.

32 billion reported in fiscal 2007-08. We – as the market leader – are committed to keep expanding the two-wheeler customer base by exploring markets across geographies – rural as well as urban – and across customer segments. April 01. there were apprehensions among industry experts on whether Hero Honda would be able to sustain its pace of revenue and profit growth in the fiscal year 2009-10. risk and policy advisory company. Hetal Gandhi and Sachin Mathur. the motorcycle segment accounted for 36 percent of the total two-wheeler sales. 123. In the fiscal year 1971-72. CRISIL is India‟s leading rating. an increase of 32.68 billion in fiscal 2007-08. In the 1960s.. Binal Shroff. by then. Enfield India Limited (Enfield) started manufacturing motorcycles. Hero Honda also strengthened its rural network by increasing sales. The company recorded a net profit of Rs. and the uncertainty over interest rates in the country is reflective of the strong fundamentals of this company. In December 2007. the company started a separate „rural vertical‟ and introduced a slogan „Har Gaaon.infibeam. In the fiscal year 2008-09. In 1955. Hero Honda reported net sales of Rs. Hero Honda had firmly established its presence in the Indian two-wheeler market. every household) targeting the rural consumers. and spare part outlets in major rural areas across India. the credit squeeze. tying up with local financers to allow consumers to take loans to buy its products. 9.”8 However. In late 2007. The company‟s other strategies to capture rural market share included coming up with promotional offers during local festivals. 12. it would be difficult for two-wheeler companies to increase revenues at the healthy rate that the previous 3-4 years had witnessed.23 percent.” http://www. 2009. An unprecedented share of over 57 per cent in the domestic motorcycle market. on Indian the two-wheeler industry. particularly when the industry has been witnessing a massive slowdown on account of the impact of recessionary trends across the globe. Local people were recruited as sales executives by the company.44 percent (Refer to Exhibit II for financial performance of Hero Honda in 2008-09).com. “Two Wheelers-Annual Review. Automotive Products of India (API) began manufacturing scooters in the country. According to Munjal.”10 THE INDIAN TWO WHEELER INDUSTRY The history of the Indian two-wheeler industry can be traced back to the mid-1900s.” http://crisilonline.crisil.‟ (every village. It felt that rural India had the potential to be a large market for two-wheelers (Refer to Exhibit I for a note on the Indian Rural Market). They were trained by Hero Honda to market products in rural areas. was growing steadily. and giving dealerships to local dealers to reach out to more rural consumers. 2 . As of 2009. two other companies. it was the world‟s fourth largest rating agency (Source: http://www.19 billion as compared to the net sales of 103.com.. research. Hero Honda started paying importance to expanding its presence in rural India. “Our 25th year – FY2008-09 – has been the defining year for us at Hero Honda. which in turn will contribute to the growth of the industry. January 2009.82 billion in fiscal 2008-09 as compared to a net profit of Rs. “Demand for two wheelers has reached its advanced growth stage and is therefore expected to grow at 6-7 percent from 2008-09 to 2012-13…Two-wheeler sale are expected to remain flat in 2008-09 and 2009-10 due to continuing difficult finance conditions. They were of the opinion that due to the slowdown in the Indian economy. which. Har Aangan.the Indian market.com). In 1952. 8 9 10 “Hero Honda Posts Highest Ever March Sales of 10%. Ideal Jawa (India) Limited (Ideal Jawa) and Escorts India Limited (Escorts) also entered the motorcycle segment. According to the research report published by CRISIL9 in January 2009. servicing. By the early 2000s. a growth of 19.

the Indian government allowed foreign players to enter the Indian market through a joint venture with a domestic company. for the first time. motorcycles. improved the quality of their products (Refer to Table I for Collaboration between Indian Two Wheeler Manufacturers and Foreign Companies in 1980s and 1990s). 25. by the year 1998. consumers‟ preference shifted to motorcycles from scooters. a number of foreign players including HMCL. The companies differentiated their products in terms of pricing. low interest rate. In the mid. and mopeds. the scooter‟s market share had fallen to 44. Suzuki Motors Corporation (Suzuki). It was a suppliers‟ market. TVS Motor Company entered into a joint venture agreement with Japan-based Suzuki Motors Corporation. Compiled from various sources. and with the help of the technical expertise of the foreign partners. However.Till the mid-1980s. and the increase in average disposable income 3 . it became a buyers‟ market. The entry of foreign companies not only brought competition into the Indian two-wheeler industry but it also improved the quality of the products. Bajaj Auto Limited entered into a technical collaboration with Japan-based Kawasaki Heavy Industries. However. In the late 1990s. In 1999. The entry of foreign companies brought about a significant change in the market. the consumers had to wait for couple of years for their vehicles to be delivered. In the early 2000s. Most of the leading Indian two-wheeler companies entered into joint ventures with foreign companies. In 2001. design. both the companies ended the agreement. Table I Collaboration between Indian Two Wheeler Manufacturers and Foreign Companies (1980s and 1990s) Year 1984 1986 1992 1995 1999 Collaboration The Hero Group entered into a joint venture agreement with Japan-based Honda Motor Company Limited (HMCL).8 percent. This restriction helped domestic players to nurture their own brands. Escorts India Limited entered into a joint venture agreement with Japan-based Yamaha Motors Corporation. Motorcycles had a market share of 30 percent and mopeds. as there were only a limited number of companies manufacturing two-wheelers.2 percent. which were small motorcycles with a low engine power. and Yamaha Motor Corporation (Yamaha) entered the Indian two-wheeler market. this agreement ended. after the entry of the foreign companies. with stiff competition among the companies to capture maximum market share. In the early 1990s.and late 1980s. In 2001. and fuel efficiency. the sale of motorcycles was more than that of scooters (Refer to Table II for Changing Market Share among various segments in the Indian two-wheeler industry between 1993 and 2003). the two-wheeler industry achieved remarkable growth because of affordable pricing. easy availability of credit. The main reason for this shift among consumers was the growing preference for fuelefficient and aesthetically appealing motorcycle models. In the mid-1980s. scooters formed the dominant segment in the Indian two-wheeler industry with an estimated market share of 60 percent in terms of total sales. Kawasaki Heavy Industries (Kawasaki). Till the year 1990. Earlier. Lohia Motors Limited entered into a technical collaboration with South Korea-based Daelim Motor Company. the Indian two-wheeler industry could be broadly divided into three segments – scooters. foreign players were not allowed to enter the Indian two-wheeler market.

India was the second largest producer of two-wheelers in the world.8% 43.3% 2.7% 54.5% Market Share of Motorcycles 20. the Hero Honda CD-100.1% 8. the overall industry sales increased by 12 percent in terms of units. HMCL and the Hero Group each held a 26 percent equity stake. The disposable income of this section of the population had increased significantly in the past couple of years. rural India had a lot of potential where sales of two-wheelers were concerned. to manufacture motorcycles.4% 35. Hero Honda had the largest market share. the first four-stroke motorcycle launched in India.2% Market Share of Step-Thru’s* 8.7% 2.8% 16. In the fiscal year 2006-07.8% 27. However.8% 8.6% 14.7% Market Share of Ungeared Scooters 9. inflation. Apart from its four-stroke engine. Bajaj M 80. considered ideal for city driving.3% 6.9% 16. Moreover.5% 10.6% 15. Source: Bajaj Auto Annual Report.6% 40. Some step thru‟s available in the Indian market were Hero Honda Street. Through this joint venture.9% 24.4% 32. the sale of geared scooters declined by 47 percent.9% 8.4% Market Share of Mopeds 20. and lack of retail finance also affected the sales. In the motorcycle industry. the industry experienced a decline in sales by 8 percent mainly because of concerns regarding a global slowdown.5% 14. In the fiscal year 2008. In the joint venture. motorcycles had a market share of 84 percent in the overall two-wheeler market. Some analysts predicted that in the fiscal year 2009.1% 10. which was approximately 80 kilometers per liter.among consumers.1% 3. As of 2006-07. 2002-03. Kinetic K-4 100.5% 15.4% 7.6% 38. its fuel efficiency. every two-wheeler company began trying to capture market share in rural market.9% 8.7% 9.6% 9. According to industry experts. Table II Market Share among Various Segments in the Indian Two Wheeler Industry (1993-2003) Year Market Share of Geared Scooters 41. when Hero Group entered into a joint venture with Japan-based HMCL. the two-wheeler industry might witness a 10 percent decline in sales. increasing input costs.6% 23. Hero Puch etc. in the same year.6% 42. They started taking marketing initiatives to attract rural consumers.0% 34.9% 8.7% 6. They opined that economic uncertainty and high interest rates would affect sales growth.3% 10.8% 8.2% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 * Step Thru is a mini bike.0% 10.0% 12.6% 9.6% 9. In 1985. HMCL was to provide technical support to the company. the growth in the Indian motorcycle market was sluggish compared to the scooters market in India.3% 42.1% 12.2% 21.8% 7. and low emission attracted consumers and it went on to 4 .9% 9.1% 66.1% 30. While motorcycle sales increased by 14 percent.3% 6. Motorcycles were perceived as unsafe and unsuitable for Indian roads.2% 74. ABOUT HERO HONDA The history of Hero Honda dates back to 1984. In the early 1980s. followed by Bajaj Auto Limited (Bajaj Auto) and TVS Motors. Hero Honda launched its first product. HMCL entered the motorcycle market of India. And with the demand in the urban market remaining more or less flat.3% 9.1% 16.0% 17.

blonnet. Neha Kaushik. was introduced. Till the mid-1990s. with full technical support and assistance for new product introductions and for any other area of our joint operations. The company produced one million motorcycles that year. In addition. the company explored a new segment – the young Indian woman. By launching another campaign titled “No Problem Bike‟.”13 In an effort to attract women buyers. In 1997. the company opened the „Just4Her‟ chain of Pleasure showrooms. 2006. In June 2004. the company launched two new models – the Sleek and the CD100 SS.” http://www. In 1994. Shut it. February 09. 5 13 .” http://www. In 1999. the Equity and Technical Collaboration Agreement between HMCL and the Hero Group was extended till 2004. as part of its plan to introduce its own two. With this product. Forget it” to draw consumers‟ attention to the fuel efficiency of its motorcycles. we are now ready to extend our products and services to this vast customer profile.000 motorcycles. the total sales of the company had crossed 10 million units. June 02. said. the preference of the Indian consumers shifted toward motorcycles. Further. the company started its second manufacturing facility at Gurgaon. The company launched an advertising campaign titled “Fill it. India‟s two-wheeler market was dominated by scooters. Ltd (HMSI). September 21. Honda would continue to provide Hero Honda with the latest and most advanced engine technology.tribuneindia. Commenting on the changing dynamics of the Indian two-wheeler market. In 2005.537 units in the fiscal year 2002-03.” 11 In 1994. the company sold more than two million motorcycles. With this launch. the company emphasized the low maintenance cost of its motorcycles. Hero Honda achieved the milestone of producing 100. after renegotiating terms and conditions. Street. HMCL established Honda Motorcycles and Scooters India Pvt. respectively. 2003. HMCL announced that it would manufacture scooters for the Indian market and would not enter the Indian motorcycle market till 2004. which catered to women consumers and had women sales executives and service supervisors. Sanjiv Bajaj. Hero Honda became the world‟s largest two-wheeler company. The club membership entitled customers to free gifts.com. However. Hero Honda launched Splendor. Hero Honda will definitely be a core part of Honda‟s integrated India strategy to develop business in India.677. Munjal said. 2004.wheelers in the Indian market. In 1987. which offers immense growth potential. “Ungeared for Growth. the then Executive Director of Bajaj Auto. Hero Honda entered the scooter segment with its first scooterette model. “Hero Honda has been one of the most successful two-wheeler joint ventures of Honda worldwide and this relationship will only be made stronger and solid. “The scooter segment in India is over one million units and has been witnessing an impressive growth for the past few months. Pleasure.herogroup.”12 By October 2004. the agreement between HMCL and the Hero Group was renewed till 2014.” www. In the year 2001. there is a huge untapped segment of women customers. discounts on the 11 12 Gaurav Choudhury. In the same year.become a major success for the company. “Honda and Hero Honda Renew Technical Collaboration Agreement. “With consumer preference changing from scooters to motorcycle we were unable to hold on to the number one position and had to relinquish it to a company (Hero Honda) that had only motorcycles in its product portfolio. In 2004.com. “Innovative Scooter Models on Cards. Till 2004. another new model. which was one of the leading players in the Indian two-wheeler market and was a leading manufacturer of scooters. In 1989 and 1991. Hero Honda was able to capture a market share of 48 percent. with the entry of Hero Honda. the company also offered membership of the „Lady Rider‟ club to its women consumers. the management of HMCL said.com. The sales figure of the company increased from 43. Commenting on the renewal of the agreement. which later became its best selling model.000 units in the fiscal year 1985-86 to 1.

an increase of 9. while sales in the Indian motorcycle market declined by 12 percent. 2009.purchase of spare parts of the scooter. New Glamour FI. declining income. and it‟s our responsibility now to take the industry to the next level.” http://www. According to Munjal. Soon. “We pioneered India‟s motorcycle industry. the company expanded its business both in urban and rural markets.herohonda. The Indian automobile industry also had been battling with the crisis since early 2008. The company also launched a marketing campaign specific for Pleasure with the punch line. the Chairman of Hero Honda. Achiever. The company offered several models including CD Dawn.”14 As of the quarter ended December 31. and turmoil in the stock markets across the world. and also attractive offers on insurance of the scooter. the growth story of Hero Honda continued. We have been able to deliver another solid quarter of strong earnings and improved operating margins. When several of these borrowers defaulted. It had three manufacturing plants in India – Dharuhera and Gurgaon in Haryana and Haridwar in Uttarakhand. 2008. Super Splendor. January 20. Passion Plus. 3.24 per cent in comparison with the third quarter of the previous financial year. In the October-December 2008 quarter.com. Passion Pro. which were less affected than urban markets.” 16 HERO HONDA’S RURAL THRUST The global financial crisis of 2008-0917 resulted in a credit crunch. automobile companies in India started focusing on rural markets. New Glamour. January 21.00 billion. Hero Honda also started emphasizing on rural markets from late 2007. New Pleasure. New Passion Pro.47 Per Cent in Q3. In the financial year 2007-08.43 percent in net profit for this quarter compared to the corresponding quarter of the previous year (Refer to Exhibit VI for a comparison of financial results of Hero Honda and Bajaj Auto in the third quarter of 200809). Commenting on the performance of the company. The crisis was triggered by the sub-prime mortgage crisis in the US in which mortgages were offered to the borrowers without proper checks being done on whether they would be able to repay the loan or not. To counter the negative sales growth. The global financial crisis was an ongoing major financial crisis that affected all countries across the world. Hero Honda launched several new models including New CD Deluxe. Splendor +. Brijmohan Lall Munjal. However.domain-b. Hero Honda reported a sales growth of 4 percent (Refer to Exhibit IV for the Financial Highlights of Hero Honda between 2003 and 2007). Hero Honda continued to be the world‟s largest two-wheeler manufacturer.com. it started affecting the financial markets of other countries also. CD Delux. 2008-09. there was a ripple effect in the US economy. Glamour. “Growth Story Continues at Hero Honda with EBIDTA at 14.15 The retail sale in the third quarter of 2008-09 increased by 3.” http://www. As of 2008. „Why should boys have all the fun?‟ (Refer to Exhibit III for the advertisement of Hero Honda Pleasure). The financial crisis became prominent in mid-2008 with the failure of several large US-based financial firms. with a domestic motorcycles market share of more than 54 percent (Refer Exhibit V for market share of Hero Honda between 2004 and 2008). We‟ll do all it takes to reach there. 2009. The net profit of the company after paying tax in the third quarter of 2008-09 stood at Rs. another major player in the Indian two-wheeler industry. 6 . 07-08. “Hero Honda Q3 Shows Encouraging Growth. “Our third quarter results reflect Hero Honda‟s remarkable resilience in the current deteriorating business environment and also illustrate the benefits of the strategic initiatives that we have undertaken over the past couple of years. With its strong distribution network. Splendor NXG. and the new CBZ X-treme. and Karizma.herohonda. reported a decline of 22. Most of the players in the Indian automobile industry had seen a decline in demand and sales. said. Bajaj Auto. rising unemployment.” http://www.com. 14 15 16 17 “Driven by Passion – Annual Report. Pleasure.5 percent compared to the corresponding quarter of 2007.

March 26. 2009.com. school teachers and doctors.forbes.000 of the targeted 23.‟ in order to cater to the rural consumers in December 2007. Understanding that increasing sales and service points would not be enough to cater to the demand of vast population of rural India. These executives were required to travel in the rural areas to market Hero Honda‟s products.indiatimes.” http://economictimes. There is a large market to be tapped.” http://www.360 villages with a population of more than 5. which will require investments to create and then tap the opportunity. Hero Honda started a „rural vertical‟ and introduced a slogan „Har Gaaon.000 across India. May 14. According to Munjal. and authorized representatives) as compared to 2. The company also announced its plan to cover 100.000 villages of the total 600. the company started collecting all the required data about rural consumers‟ demand. According to Anil Dua (Dua).com.21 The company ensured that availability of spare parts for its motorcycles and getting the vehicles serviced would not be a problem for rural consumers. 2009. “Hero Honda‟s Motorcycle Diary. “Rural elders have been roped in to communicate our message to prospective customers. Har Aangan.business-standard. April 29. Vaishali Jajoo (Jajoo). the rural sales executives approached more than 100. October 21.000 opinion leaders in the villages that were covered by the rural network of the company.livemint.com.18 To tap this potential.000 in the financial year 2006-07. auto analyst at Angel Broking. In the fiscal year 2007-08. July 18. Commenting on Hero Honda‟s increasing emphasis on the rural market.” http://www. The company also planned to increase the number of customer touch points by 600 in the financial year 2009-10. 2008. eight percent of the households in rural India had a two-wheeler in comparison to the 25 percent in urban India. the opinions of people such as village panchayat heads and teachers are taken seriously. Naazneen Karmali.000 villages in India by the end of the financial year 2008-09. spare parts stockists.com. as of early 2008.” http://www. In the fiscal year 2008-09.”22 18 19 20 21 22 Samar Srivastava. “As a market leader. and the factors that affected demand. In an effort to cater to the rural population.. 7 . said. Hero Honda started expanding its sales network and added more service and spare parts outlets.automotive-business-review. 2008. Hero Honda has to look at various alternatives to fuel growth. service and spare parts outlets.” http://www. “Hero Honda Eyes Rural India to Step up Sales.com. The company‟s dealers also provided information on the spending patterns of rural consumers. Hero Honda marketed its fuel-efficient motorcycles with smaller engine capacities in the rural market.”20 RURAL NETWORK During the financial year 2007-2008.500 customer touch points (dealerships. 2008. the company expanded its sales network to 3. S Kalyana Ramanathan. There‟s the replacement as well as the rural market..According to the National Sample Survey Organization (NSSO). Although no specific product was introduced targeting rural consumers. Senior Vice President for Sales and Marketing of Hero Honda. the company also employed and trained 521 rural sales executives across India to market its motorcycles. the rural network of Hero Honda covered 18. “India‟s Motors on.”19 In an effort to understand the needs of rural consumers and their spending patterns. their spending pattern. The opinion leaders included the „sarpanch’ (village head). The objective is to reach out to as many potential customers as possible.90% in Q2. In villages. and those people who could have an impact on the spending decision of rural consumers. “Hero Honda Net Profit Rise 49. “Hero Honda Takes Rural Road to up Sales. “We have created a special „rural vertical‟ to push growth and this would spearhead our expansion in the rural market.

It entered into agreements with cooperative banks. Sometimes. lack of financing could result in a decline in sales. The finance division was to provide finance to rural consumers who were interested in buying its two-wheelers. Hero Honda also roped in dealers to run promotional activities in their respective districts. „Gudi Padwa‟ in the western region. Hero Honda‟s Sales Manager in Rajasthan. the company ensured that the consumers would be able to get their vehicles serviced by these local sub-dealers. As Hero Honda motorcycles had good resale value. According to analysts. 2009. Samar Srivastava. Sandeep Mukherjee. 23 24 Samar Srivastava. and „Pongal‟ in the southern region of India.” http://www. and in the panchayat (village council) office.”23 PROMOTION Hero Honda promoted its products aggressively during festive seasons in different regions of India as sales during festive season was generally higher compared to the rest of the year. March 26. In an effort to convince the consumers. 8 .” http://www. The sub dealers arranged promotional activities in villages.livemint. Local rural people could purchase their motorcycles from these sub-dealers and could also get their vehicles serviced by them. The dealer generally had an office in the district headquarters and could again give dealerships to “authorized representatives” who were its sub-dealers. “Dealers understand their area the best. “Hero Honda‟s Motorcycle Diary. and other financial institutions which offered microfinance. According to Akhilesh Sharma.com. They could also get information on how to run the motorcycles and on their maintenance. If any consumer defaulted on the loan payment.livemint. For example. Most Indian consumers preferred buying automobiles and other household items during festivals as they considered it auspicious to do so.”24 RETAIL FINANCE The growth of the Indian two-wheeler industry was highly dependent on the availability of retail finance. They also helped consumers get finance to buy motorcycles from them. “Hero Honda‟s Motorcycle Diary. Hero Honda planned to start its own finance division. they displayed some motorcycles in the panchayat (village council) office throughout the day. they don‟t like to do that every time they need to get it serviced. the local dealers put up price lists of the two-wheelers at tea shops.com. Dealers also organized „service camps‟ where the customers could get their motorcycles serviced. The company does provide broad guidelines. products were promoted during „Durga Puja‟ in the eastern region. The company understood that if consumers had to travel to district headquarters every time they wanted to get their motorcycle serviced. To ensure easy availability of finance to people in the rural areas to buy its vehicles. the process of getting loans to buy these motorcycles from banks and financial institutions was not very stringent. „Diwali‟ in the northern region. “We realized that while someone might be willing to travel 50 km to buy a bike. Banks sanctioned loans for the motorcycles. Grameen banks.DISTRIBUTION Hero Honda followed a “Hub and Spoke System” in distributing its products in rural areas. and so we leave local activities to them. Sales Manager at Hero Honda‟s All India Rural Division said. they might not be interested in buying from Hero Honda. 2009. Therefore. tailor shops. the local market. Villagers could take a test drive and could find out more about the product from the company‟s rural sales executives. March 26. the bank could seize the motorcycle and resell it to recover the loan amount. The company gave a dealership to one dealer who would take care of a district.

January 31. Hero Honda had captured a 57 percent market share in the domestic motorcycle market.”28 In the fiscal year 2008-09. Moreover.34 million vehicles in 2007-08.” http://www. Munjal said. which is a cash down segment. MD and CEO of Fullerton. so there is money getting to the rural consumer. 2009.forbes.bloomberg. For example. Sundararajan. its emphasis on expanding its business in rural India had contributed to the impressive sales performance of the company. May 14. “Our understanding of the small credit market in India and our international experience in the mass market segment will be beneficial in servicing the wide spread network of Hero Honda Motors. April 17. analyst at Antique Stock Broking Ltd. Dua said. 2009. Naazneen Karmali. semi-urban. Hero Honda.. Hero Honda sold 3.000 units per day to 3. Shriram and Fullerton could set up their own counters at Hero Honda dealerships and offer finance to the customers of Hero Honda.com. March 17. We see a lot of synergies in this tie-up. S.”30 25 26 27 28 29 30 “Fullerton India and Hero Honda Signs MoU. said. According to Jajoo.” http://economictimes.000 units per day in January 2009. these developments had resulted in an increase in rural disposable incomes.com.Hero Honda entered into agreements with local retail financers including Shriram Transport Finance Company (Shriram) and Fullerton India Credit Company Ltd. has helped the company‟s sales tremendously. the National Rural Employment Guarantee Act ensured every poor household in rural India at least 100 days of work to one adult member of their family.” http://economictimes. According to the analysts. 9 .indiatimes. 2008. “India‟s Motors on. to take infrastructure into the rural areas. and rural areas. “Hero Honda Sees Growth in Tough 2009/10. more and more people in the rural areas would use two-wheelers for traveling. The government‟s policies over the last couple of years have been to grow the agricultural sector.95 percent in 2008-09 (Refer to Exhibit VII for market share of leading players in the Indian two wheeler market in 2008-09). July 29. “Our strategy of exploring untapped markets in rural and upcountry areas has paid off. Hero Honda expected that with the increase in disposable incomes. According to analysts. compared to 35 percent the previous year. Hero Honda was able to generate 40 percent of its sales from the rural market. Commenting on the growth potential in the rural market. Bajaj Dips.” http://economictimes. “Hero Honda Jan Sales up. It adds to the bottom line and profit margin of the company. Hero Honda increased its production capacity at its Haridwar manufacturing plant from 2.72 million two-wheelers. “I believe that‟s where more of the growth is going to come from.”27 In the fiscal year 2008-09. targets customers in the same mass market as we do in urban. Commenting on the impressive sales growth. compared to 3. After the tie-up. the government had also increased the procurement prices for agricultural commodities.indiatimes. According to Amish Shah.business-standard. Chanchal Pal Chauhan “Hero Honda Beats Rivals by a Mile.com. It took advantage of the tax benefits offered by the government to companies for establishing manufacturing plants in hill states like Uttarakhand. Commenting on its tieup with Hero Honda.com. you save on the tax payments. (Fullerton) in February and July 2008 respectively.” http://www. 2009.” http://www.indiatimes. G. Sales up 12%. The rural market is evolving and growing at a fast pace and gives us huge incremental numbers transpiring into stable growth in sales. India‟s leading brand of two-wheelers.”25 THE ROAD AHEAD At a time when most of the automobile manufacturers had to decrease production. 2009.29 Riding on its healthy sales growth. Hero Honda was not required to pay excise duty to the government for the first 10 years and income tax for the first five years of production at its Haridwar plant. “When you increase production at this [Haridwar] factory. 2009.com.”26 Hero Honda believed that favorable government policies for people in the rural areas would help the company increase its sales in the rural market. Its market share in the overall two-wheeler market was 48.com. “The company‟s aggressive foray into the rural market. February 3. “Hero Honda Expects Record Sales as India Demand Gains. a growth of 12 percent. in addition to Hero Honda‟s good product and brand value.

” http://www. We have a couple of tough quarters ahead to go through but India will probably be the first to come out of the downturn.” http://www.com. 2009.bloomberg.In April 2009. The company expected to sell four million vehicles in the financial year 2009-10. it is difficult to predict for the next fiscal but the first quarter is looking good and the second quarter may not be as good as the first one due to issues like rain.livemint. Ravi Sud.72 million vehicles in the financial year 2008-09. analysts opined that financial year 2009-10 would be a tough one for the two-wheeler industry in India. “„No impact of Nano on Two-Wheeler Industry‟. compared to 3.com. “Going by the current circumstances. Chief Financial Officer (CFO) of Hero Honda. According to Munjal.”31 However. Hero Honda also agreed with this view but was optimistic that the economic scenario in India would improve soon. 10 . Commenting on the rationale behind the projection of sales growth. Hero Honda announced that it expected its sale to increase by 7. the global financial meltdown and the resultant slowdown in the Indian economy would continue to impact consumer spending. March 26. said. According to them. “We are betting on economic growth and strong rural demand. April 17. 2009.5 percent in the financial year 2009-10.”32 31 32 “Hero Honda Expects Record Sales as India Demand Gains.

with an average population of 1. According to the Eleventh Five-Year Plan announced by the Indian government. pharmaceutical. Maruti Suzuki launched a marketing campaign. Since early 2008. For example. the farm loan waiver of US$ 13. the Santro. rural India was spread across more than 600.86 billion and the Bharat Nirman Program. the per capita consumption of FMCG products in rural India would be equal to the level of per capita consumption in urban India in 2008. Moreover.84 billion. rural India had emerged as a growing market for the companies. by 2017. consumer electronics.Exhibit I A Note on the Indian Rural Market According to estimates. the “Ghar Ghar Mein Maruti (Maruti in every household)” to target rural consumers. and the eleventh largest passenger car market in the world. According to the Associated Chambers of Commerce and Industry of India (Assocham). The reasons included the high price of four wheelers. in July 2009.100 per village The interim budget of 2008-09 focused on expanding the National Rural Employment Guarantee Act (NREGA) to all states of India. Bajaj Auto also planned to launch special finance schemes for rural consumers. Notwithstanding the high potential of the rural market. and automobile sectors enhanced their focus on rural markets.17 billion. According to the Indian Communications and IT Ministry. companies from fast moving consumer goods (FMCG).000 villages. The life insurance market in semi-urban and rural areas was also expected to increase to US$ 20 billion by 2012 from US$ 5 billion in 2008.83 billion. According to a study by the Rural Marketing Association of India (RMAI). the total projected investment in rural India amounted to US$ 283. Compiled from various sources. Although the per capita income of rural people was low when compared to that of urban people. telecom. the world‟s fourth largest commercial vehicle market. automobile companies started rural marketing campaigns. In 2008. the increasing output of agricultural products and the growing subsidies on agricultural products given to farmers resulted in an increase in rural income. the automobile market in rural India was highly untapped. of which US$ 80. poor rural infrastructure. which made available US$ 34. and not enough service and spare parts outlets. Hyundai Motors also started a promotional scheme for government employees and members of village administrations for its car. Riding on the increasing income of rural India. two-third of this population hails from rural areas. In the rural markets. in 2007. The rise in income was reflected in increasing demand among rural people. given the poor rural infrastructure. India‟s population would reach 1. However. some analysts opined that there would be some challenges before the companies. was expected to contribute significantly to the development of rural infrastructure and the income of rural people. They were of the opinion that as India‟s villages were spread over 3. FMCG companies witnessed a higher growth in rural markets compared to urban markets. in 2008. while urban markets had witnessed a flat or negative growth. retail. India was the second largest two-wheeler market. As of 2008. Approximately. delivering products and developing an efficient distribution networks across rural India would be a major challenge. To tap the rural market. there was high demand only for tractors and two-wheelers. it would be quite difficult for the companies to ensure consistent availability of products or services. 11 .2 million sq km. India would have 200 million rural telecom connections by 2012.82 billion would be spent on improvement of rural infrastructure. In addition.

Exhibit II Financial Performance of Hero Honda (2008-09) (Rupees in Million) Particulars Quarter ended March 31.//www. Year ended March 31.4 34. 2009 (Unaudited) 997. 2008 (Audited) 3.987.47 Exhibit III Advertisement of Hero Honda Pleasure Source: S.6 64.568.000 12.blonnet.0 14. 12 .19 Year ended March 31.021.177.2 29. 2009 (Audited) 3.678.14 Quarter ended March 31.998. February 05.427.886. of two wheelers sold (In Units) Net Sales/Income from operations Total Net Operating Income Total Expenditure Net profit for the period Basic and diluted earnings per share (in Rupees) Source: http.0 103.5 27.118.8 48.9 24.855 34.com.645.2 123.2 12.880.202.075 27.4 91.225.” http://www.142 103. “Riding into a New Market with Pleasure.9 4.8 107. 2008 (Unaudited) 884.318. Muralidhar.722.337.817.com.3191.7 20.96 No. 2006.herohonda.5 9.9 2.

460 1.Exhibit IV Financial Highlights of Hero Honda (2003-2007) (Rupees in Million) Particulars Sales (in units) Growth in sales (in percentage) Total net income Growth in total income (in percentage) Profit before tax Profit after tax Share capital Reserves and surplus Total debt Net fixed assets Total assets (net) Market capitalization Economic Value Added (EVA) Source: http://www. 44.0 2005 Financial Year ended March 31.690 5.4 59.180 138.900 13.000 17.690 2004-05 2005-06 2006-07 2. 40.580 39.0 2004 Financial Year ended March 31.2 100.5 10.94 14.430 5.6 75.100 39. 2004-08.530 4.78 More than 54.94 10.950 109.0 48.0 2006 Financial Year ended March 31.640 14.750 Exhibit V Market Share of Hero Honda (2004-08) Market Share in the Indian Market Share in the Two Wheeler Market (%) Indian Motorcycle Market (%) Financial Year ended March 31.650 13.860 994 21.530 2.94 24.850 2007-08 3. 39.14 2 0.150 16.4 14.170 8.000. 40.com.336.0 Less than 50.990 1.590 26.94 29.7 12.2 14.herohonda.460 8.756 26.100 11.680 39.720 7.280 39.1 12.7 2007 Financial Year ended March 31.100 9.890 13.810 64.070.94 19.710 39.690 1.350 137.490 31. 37.750 5.5 887.970 15.020 7.0 2008 Compiled from Annual Reports of Hero Honda.950 177.400 3.170 4.0 50.300 1. 2003-04 2.550 26.120 9.4 45.01 105.337.970 5. 13 .140 97.621.147 23.751 3.320 15.

) 857.com.111 2141.04 369. 2009.” http://www.00 166.” http://autos.53 300.sify.04 Bajaj Auto 417. Billion) Hero Honda Number of two wheelers sold (In Units) Net sales/income from operations Profit from operations before other income.00 11.domain-b. Exhibit VII Market Share of Leading Players in the Indian Two Wheeler Industry (FY 2008-09) Companies Hero Honda Motors Limited Bajaj Auto Limited TVS Motor Company Honda Motorcycles and Scooters India Pvt. Ltd.66 Source: “Hero Honda & Hyundai Gains.00 335.42 15. interest and tax Net profit Basic and diluted earnings per share (Rs. April 17.com.40 Source: “Hero Honda Q3 Shows Encouraging Growth.29 15.95 17. 14 . Two Wheeler Market Share (%) 48.806 2874. 2009.28 13. Bajaj Loses Market Share In 2008-09.Exhibit VI Comparison of Financial Results of Hero Honda and Bajaj Auto (Q3 FY 2008-09) (In Rs. January 21.

” http://www. Sindhu Bhattacharya. Priyanka Vyas. 10. 11.domain-b.” http://in. 25. Muralidhar. “Hero Honda Expects to Sell 3. 2009.wsj. 2009. 7. 2008. 16. 2009.” http://crisilonline. 6.com.com.com. January 20. “Hero Honda Looking to Gain Market Share. 2008. 27.” http://www.com.com.” http. 2009. 2009. October 21.” http://autos.com. 2009. “Hero Honda Boost Production at Haridwar. April 29.” http://www. 2009. 2. April 17.” http://www. 17.com. 2009. S. July 29. 2008. January 31. 15. July 18. 3. February 03. “Hero Honda Jan Sales up.reuters.References and Suggested Readings: 1. March 17. “Hero Honda Working On A ‘Nano’ Bike. January.” www. “Hero Honda Posts Highest –Ever March Sales of 10%. 20. “Ungeared for Growth. 2006.automotive-businessreview.” http://www. 2009. “Honda and Hero Honda Renew Technical Collaboration Agreement. 2009. 2009.” http://economictimes. 2008. Bajaj Dips.business-standard.indiatimes. “Two Wheelers-Annual Review. January 18. 21. Sales up 12%. 13. September 21.” http://www. “India’s Motors On.com. April 17.forbes. June 02.business-standard. 9.business-standard.com.” http://www. 19.sify. “Hero Honda & Hyundai Gains. Chanchal Pal Chauhan “Hero Honda Beats Rivals by a Mile. April 01.” http://www. April 02.livemint.com. “Riding into a New Market with Pleasure.com.com.herohonda. 18.com. 2009.” http://www.indiatimes. May 8.” http://economictimes. 2004. “Hero Honda Expects Record Sales as India Demand Gains. Neha Kaushik.com.thehindubusinessline. “Hero Honda Q3 Shows Encouraging Growth.com. 2009.com. 200809. 2009. 5. 14.com. March 26. May 14. “Hero Honda Leads Rise in Two-Wheeler Sales.com. 15 . March 26. 26. Naazneen Karmali. Binal Shroff. “‘No impact of Nano on two-wheeler industry’.blonnet.online. “Hero Honda Takes Rural Road to up Sales.infibeam.herogroup. January 21.90% in Q2. 8.” http://www. February 05.com. 22.com. 2009.indiatimes.” http://www.” http://www.tribuneindia.com.//www. 2003.72 Million Vehicles. April 23. March 26. “Growth Story Continues at Hero Honda With EBIDTA at 14.com.com.com. “Hero Honda’s Motorcycle Diary. “Driven by Passion-Annual Report.” http://www.livemint. 07-08. “Hero Honda Net Profit Rise 49. S Kalyana Ramanathan. 4. “Fullerton India and Hero Honda Signs MoU.com. “Hero Honda Eyes Rural India to Step up Sales.herohonda.herohonda. Bajaj Loses Market Share In 2008-09.” http://www.” http://www.” http://www.47 Per Cent in Q3. February 09. Gaurav Choudhury. 12.blonnet.com. 2006. 24. “Innovative Scooter Models on Cards.dnaindia. 23.” http://www.com. “Hero Honda Sees Growth in Tough 2009/10. www. Samar Srivastava. Hetal Gandhi and Sachin Mathur. 2009.indiatimes.” http://economictimes.bloomberg. 2009.” http://economictimes.

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