Introduction of Hero Honda Motors Ltd.

: -

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

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

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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 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

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As evident from the table company has a strong balance sheet. Further the company has a
consistent record of paying dividend.

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 and is virtually a debt free company.

HERO HONDA
HONDA (UNICON) (CBZ)
11% 4%

SUZUKI (ZEUS)
5%

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

Introduction of Hero Honda Splendor: -

Hero Honda Splendor

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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.

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 +

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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.

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.

• 160mm of ground clearance.

Colors

• Candy blazing red

• Force Silver

• Vibrant blue

• Classy maroon

• Black

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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

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

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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 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:

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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.

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.

Behavior Segmentation: -

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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 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.

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  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

P1
P2
P3

Product Specialization
M1 M2 M3

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 P1

P2

P3

Market Specialization

M1 M2 M3

P1

P2

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.

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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 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.

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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’ (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.

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

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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:
♦ 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.

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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.

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.

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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 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: -

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Geographical Placing: - Geographical placing of the product has divided
into 4 markets and these are: -

1. Local
2. National
3. Regional
4. International

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

BIBLIOGRAPHY

• www.herohonda.com

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

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