Hero MotoCorp's premium ambitions
The country's largest two-wheeler maker is taking a cue from Maruti Suzuki to appeal to customers at the top end of the market
Auto makers are keen to offer a differentiated experience to customers, not just with the products but also during the purchase process and afterwards at service centres. This is becoming critical with the expansion of market and rising competition in the sector. The growing number of young and digital savvy buyers is also a trigger.
The first such move was made by the country’s biggest car maker, Maruti Suzuki, in 2015. The Suzuki promoted company launched a premium sales network for select cars. Branded as Nexa, this network was only open for investments to the existing dealers of the company. Started with a single product, the S Cross, Nexa is now home to three more products — Baleno, Ignis and the Ciaz. The company has successfully ramped up Nexa to 300 outlets and set up exclusive workshops for Nexa cars. Helped primarily by Baleno, Nexa channel now accounts for one-fifth of the domestic sales for Maruti Suzuki.
It is now the turn of another market leader, this time in the two-wheeler space, to walk this path. Hero MotoCorp, the country’s biggest two-wheeler maker, rules the mass motorcycle segment but has had limited success in the premium segment. However, it has set its sights on this segment and recently unveiled two new motorcycles, each with a 200cc engine. Prices of these are not known yet, but they will have a premium positioning.
Pawan Munjal, chairman and managing director and chief executive of Hero MotoCorp, told Business Standard early this month that the company was working out a strategy for the premium segment. “All I can say right now is that we are at the drawing board and working out a strategy, especially for the premium segment products. With our very large volume of sales in the 100-110cc commuter segment, we get a very large traffic at the dealerships. And, these are two different sets of consumers. Each one is seeking a different kind of experience at the point of sales and service,” said Munjal.
Hero sells seven million two wheelers a year. But Munjal knows that it will be a challenge to deal with expectations of premium buyers in the existing setup of 6,500 touch points that sell these bikes. Having a single network where the traffic is huge may not be the best solution for meeting expectations of buyers who are seeking an enhanced experience, he said. “We are working on a strategy for the higher cubic capacity products. A differentiated network is a possibility,” he said. Hero has plans to widen the offerings in the premium segment, currently dominated by Royal Enfield.
Interestingly, both Maruti Suzuki and Hero MotoCorp are dependent on entry level vehicles for volume. Maruti has been thriving on models like Alto and WagonR for years, so much so that it was perceived as a manufacturer of small cars. It has to a large extent managed to change that image post Nexa and with the launch of products like S Cross and Ciaz while not losing sight of the small car buyers. Munjal is also cautious about keeping a balance between the commuter and premium segment. “We have not taken our eyes off the entry segment, which is bread and butter for us. That is where the money comes from which we then invest back into R&D, marketing and global business”.
Having seen the establishment of Nexa, Hero MotoCorp can make a more informed foray into the new network. Maruti’s first Nexa product, the S Cross, couldn’t become a volume product, causing some initial concerns over profitability to dealers. S Cross also had to take price cuts weeks after the launch. However, the volume gap was addressed with the launch of Baleno later in the year. There has been a waiting list for the product for well over two years.
Hero will have to bring the right product mix at its new network to ensure that dealers have some visibility of profits from the beginning as the investments required of them would be large. Enough attention will also have to be paid to the selection of manpower. Nexa had hired thousands of executives from unrelated industries like aviation, hospitality and banks to offer a distinct service experience with soft skills. Maruti Suzuki spent millions to train the Nexa executives. Hiring executives from the same industry may not yield the desired output. Interestingly, Nexa has had some rub off on Maruti Suzuki’s regular sales network — it is also undergoing a revamp under the Arena brand.
But a differentiated network is not for every company and therefore no other car maker has ventured into a second network — which is only justified if a company has several products and each with volume. Kaustav Roy, regional director at JD Power Asia Pacific, an automobile research firm, said that since the Indian automobile market is dominated by a handful of players — both in cars and two wheelers — it will only make sense for the bigger ones to expand into a new network, like in the case of Maruti Suzuki.
“Setting up a new network is not easy in terms up capex involved, operational costs, etc. You must have sufficient volumes or be confident of your new models to garner that volume. Hero MotoCorp has humongous amount of volumes that they can play with. Therefore, expansion into a new network by the market leader is always relatively easier than anybody with a low volume,” he said.