Bajaj vs Hero Honda

Yeah, yeah I heard it too. Bajaj is indeed saying that they intend to exit the 100cc segment. I also hear that this landmark statement came from none other than Rajiv Bajaj himself. A man who is known to keep his word. I did some googling and found that more than a few people had called it a tactical exit. Which, while a close approximate, isn't really the exact nail-on-head term for this sudden twist in the tale.

What, in effect, is happening is something I read in one of our auto mags a couple of years ago. I think it was a comparison test, where the journalist says something on the lines of – attacking a market leader with a product proposition similar to his most popular product only strengthens the leader's position and works against the challenging brand.

In simpler words, Bajaj has now understood that Hero Honda's number 1 position hinges on the sales of the 100cc executive/commuter motorcycles. And that dethroning HH is simply a matter of taking over those numbers. And further, the most likely way of doing that is to stop playing price games with similar displacement machines. And instead, throw a googly at HH by starting the product range at 125cc, offering competitively priced, higher-displacement machines in the entry and executive segments. I read in the newspaper reports that Bajaj is preparing a from-scratch low-cost 125cc platform to bring this statement into reality. A great idea.

In the process of reading this material, I also happened on a confidential-till-end-2005 report (thanks google). The report also brings out another interesting perspective, which I think is relevant here. Especially given the two stories Economic Times carried today (see the story related to Hero Honda's royalty and technology payments taking over number three slot in the expenses column).

We already know that as raw material costs rise and price competition intensifies, margins are under pressure. But look, Bajaj sells 35,000 or more Pulsars every month, and hence, in the sale mix are higher margin products than can offset some of the price pressures, stabilising the margins. Guess who can't say the same about their product mix.

More to the point, Bajaj is also able to respond to market needs/competition by quickly upgrading, changing or re-packaging products when (and if) needed. Again, guess who can't do that, thanks to a technology-restricitive tie-up. On the other hand, offering a 125cc segment to the 100cc customer at the same cost seems like a brilliant idea. But what if they're unwilling to accept bigger displacement (say, because they link cubes to kpl as a inverse proportion relationship?). Uh oh.

This is a beautiful strategy game being played at the very highest levels. We're fortunate to have a ring side seat. May the best side win, I say