Hero Honda's Rural Marketing Initiatives in India

Abstract:

The case discusses the rural marketing initiatives of Hero Honda Motors Limited (Hero Honda), a leading two wheeler company in India. Hero Honda, which was the result of a joint venture between Japan-based Honda Motor Company Limited (HMCL) and the India-based Hero Group, began its operations in 1984. In late 2007, Hero Honda started putting emphasis on the rural markets. In December 2007, the company started a separate 'rural vertical'. To strengthen its network in rural areas, the company started sales, servicing, and spare part outlets in several small towns and villages across the country. The company recruited local people as sales executives and trained them to market its products to rural consumers.
In the fiscal year 2008-09, the sales of Hero Honda from the rural market amounted to 40 percent of the total sales compared to 35 percent during the fiscal year 2007-08. The case details the rural marketing strategies of Hero Honda and examines the potential of Indian rural market for two wheelers.

Issues:
Discuss the growth strategies of Hero Honda over the years. Analyze the rural marketing strategy of Hero Honda. Examine the challenges faced by Hero Honda in the rural markets. Study the potential of Indian rural market for two wheelers.

Keywords:
Hero Honda Motors Limited, Rural Marketing, Low-cost Motorcycle, Indian Two-Wheeler Market, Rural Network, Global Financial Crisis, Rural Disposable Income, Brand Value, Rural Demand, Rural Distribution Network, Promotion, Retail Finance, Growth Potential, Indian Rural Market

The majority of India lives in rural areas and the government is pumping in a lot of money through various programmes. Hero Honda is focusing a lot on rural markets. Going forward, a substantial industry growth is expected to come from these markets."1 - Pawan Munjal, MD and CEO, Hero Honda Motors Limited, in May 2009. "They [Hero Honda] have positioned themselves as a rural India story, at just the right time." 2 - S. Ramnath, Vice President at IDFC-SSKI Securities Limited3, in March 2009. "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. This makes us optimistic about the market." 4 - Anil Dua, Senior Vice President for Sales and Marketing, Hero Honda Motors Limited, in January 2009.

Introduction

In April 2009, India-based Hero Honda Motors Limited (Hero Honda) announced that it was planning to develop a low-priced motorcycle. The company said that the motorcycle would be launched specifically for rural consumers and was likely to be priced between Rs. 12,500 and Rs. 15,0005. Pawan Munjal (Munjal), Managing Director and Chief Executive Officer of Hero Honda, said, "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. But this is not the end and we hope to come up with a solution... we continue to work on this."6
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"Hero Honda Looking to Gain Market Share," http://in.reuters.com, May 08, 2009. Samar Srivastava, "Hero Honda's Motorcycle Diary," http://www.livemint.com, March 26, 2009. Mumbai, India - based IDFC SSKi Securities provides corporate finance and institutional securities services. Priyanka Vyas, "Hero Honda Boost Production at Haridwar," http://www.thehindubusinessline.com, January 18, 2009. Rs. or INR refers to Indian Rupee. As of June 25, 2009, 1 US$ INR 48.60. Sindhu Bhattacharya, "Hero Honda Working On a 'Nano' Bike'," http://www.dnaindia.com, April 23, 2009.

Introduction Contd...

Munjal said that although the new motorcycle would be made available at a low cost, the company would not compromise on its quality

and safety. He said, "Whatever we bring should certainly have a significant price advantage. Just because we have an enhanced rural focus, it does not mean that rural customers can be offered products which do not stand the test of performance or durability. In fact, rural customers need sturdier vehicles (than urban ones)."7 Started in 1984, Hero Honda was the result of a joint venture between Japan-based Honda Motor Company Limited (HMCL) and the India-based Hero Group.
Hero Honda started its journey with the launch of Hero Honda CD-100 motorcycle, the first four-stroke motorcycle to be launched in the Indian market. By the early 2000s, Hero Honda had firmly established its presence in the Indian two-wheeler market. In late 2007, Hero Honda started paying importance to expanding its presence in rural India. 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)...

Excerpts The Indian Two Wheeler Industry

The history of the Indian two-wheeler industry can be traced back to the mid-1900s. In 1952, Enfield India Limited (Enfield) started manufacturing motorcycles. In 1955, Automotive Products of India (API) began manufacturing scooters in the country...
About Hero Honda

The history of Hero Honda dates back to 1984, when Hero Group entered into a joint venture with Japan-based HMCL, to manufacture motorcycles. HMCL was to provide technical support to the company. In the joint venture, HMCL and the Hero Group each held a 26 percent equity stake...
Hero Honda's Rural Thrust
The global financial crisis of 2008-09 resulted in a credit crunch, rising unemployment, declining income, and turmoil in the stock markets across the world. The Indian automobile industry also had been battling with the crisis since early 2008... RURAL NETWORK During the financial year 2007-2008, the rural network of Hero Honda covered 18,000 of the targeted 23,360 villages with a population of more than 5,000 across India. The company also announced its plan to cover 100,000 villages of the total 600,000 villages in India by the end of the financial year 2008-09...

DISTRIBUTION Hero Honda followed a "Hub and Spoke System" in distributing its products in rural areas. The company gave a dealership to one dealer who would take care of a district... 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... RETAIL FINANCE The growth of the Indian two-wheeler industry was highly dependent on the availability of retail finance. According to analysts, lack of financing could result in a decline in sales...

Excerpts Contd... The Road Ahead

At a time when most of the automobile manufacturers had to decrease production, Hero Honda increased its production capacity at its Haridwar manufacturing plant from 2,000 units per day to 3,000 units per day in January 2009. It took advantage of the tax benefits offered by the government to companies for establishing manufacturing plants in hill states like Uttarakhand. 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...
Exhibits
Exhibit I: A Note on the Indian Rural Market Exhibit II: Financial Performance of Hero Honda (2008-09) Exhibit III: Advertisement of Hero Honda Pleasure Exhibit IV: Financial Highlights of Hero Honda (2003-2007) Exhibit V: Market Share of Hero Honda (2004-08) Exhibit VI: Comparison of Financial Results of Hero Honda and Bajaj Auto (Q3 FY 2008-09) Exhibit VII: Market Share of Leading Players in the Indian Two Wheeler Industry (FY 2008-09)