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The Comeback Kid

Bajaj Auto was down in the dumps for over a year. But after much soul-searching, Rajiv Bajaj tried a whole new strategy to take on Hero Honda. And that’s now beginning to pay off

Published: Dec 14, 2009 08:02:41 AM IST
Updated: Dec 14, 2009 01:46:02 AM IST

Rajiv Bajaj’s swagger is unmistakable. Dressed in track pants and a white T-shirt, the tall, broad-shouldered Bajaj leads us into his bedroom for the photo shoot. At first glance, it could pass off as any spartan middle class home in India. He lays open a yoga mat, begins his warm-up in practiced rhythm, and easily slips into one pose after other — standing, sitting, bending forward and backward. Mid-way through his routine, we tell him that his adhomukhaswanasana or the dog-like pose is almost perfect. Bajaj doesn’t lose a moment to retort even as he is stretches his limbs to the maximum: “That’s because you work like a dog at Bajaj Auto.”

Clearly, he hasn’t lost his sense of humour. When we met him in early November, we found him surprisingly cool and unflappable. Never once did he come across as a man who till recently had been assailed from all sides — by media, stock market analysts, vendors, dealers and even his own board.
For almost a year now, the 42-year-old managing director of Pune-based Bajaj Auto and India’s No. Two motorcycle maker had tried to shut out the outside world. He kept away from media interviews. Even today, he says he doesn’t read the pink papers or watch television. Barring the newspaper and magazine snippets that get circulated with clockwork regularity from the chairman’s office, he has no access to mass media. Rahul Bajaj, his dad, devours every bit of what gets reported on the company. “The chairman ensures that we get our mandatory fill of media,” jokes Rajiv Bajaj.

These snippets would have at least ensured that Bajaj knew what the world was saying about him. They weren’t exactly flattering. There was a constant stream of stories about how the company’s market share had plummeted or how its share price had dropped to its lowest level in over a decade. His dealers and vendors were worried that their business had become unviable. Even the company board, including chairman Rahul Bajaj, was more than a wee bit anxious about the future. But there was one particular strand that would have hurt father and son most: Almost everybody seemed to think that their bête noire, the Munjals of Hero Honda, had turned out to be decisive winners in their fight with the Bajaj family. No one gave the young Bajaj any chance of a comeback. For a family that was used to being a leader, this wasn’t easy.

But today, the siege is finally lifting. Bajaj is finally stepping out of his self-imposed exile. And there’s a good reason for that. News has just trickled out that Discover M, a new 100 cc bike Bajaj Auto launched in July, has taken the market by storm. There’s been very little advertising to back the launch. Yet in a matter of four months, it has sold more than 200,000 bikes and helped Bajaj Auto regain almost all the market share it lost last year. In the last six months, Bajaj Auto’s market share has jumped from 17 percent to 28 percent. Bajaj isn’t celebrating yet. Instead, he is fighting back in the only way he knows. Next week, he plans to launch yet another new bike: An affordable variant of the Pulsar. It is a project that has been in the works for almost three and a half years and is expected to drive another wedge into Hero Honda territory.

But this isn’t just about two new launches, regaining lost share and repairing bruised egos. The real story is a lot deeper. While the Munjals were running circles around his company, Bajaj did some serious soul-searching. He thought hard about his strategy — why he had failed — and more importantly, what would Bajaj Auto have to do survive five years later?

Ironically, the secret was hidden inside three of the biggest two wheeler brand successes in the last four decades: Chetak, Splendor and Pulsar. All it needed was a new prism to discover the true essence of their success. And Bajaj found that through two unusual sources of knowledge: Yoga and homeopathy.

Now, to understand Bajaj’s mind, you’ll need to go back in time.

When he first stepped into Bajaj Auto in the early nineties, it was apparent that the young engineering graduate from Warwick had no interest in the scooters his dad built. For him, Bajaj Chetak, the company’s warhorse, was a symbol of the past. But neither his dad nor the rest of Bajaj Auto could see the writing on the wall. It was only many years later that his father would concede in private conversations with senior executives that without Rajiv, there was no way that they could have saved the company.

At that time, much against his father’s wishes, he built a new plant in Chakan near Pune, away from the old set-up at Akurdi, to make motorbikes. He invested big money in R&D and product development and began to remake the fuddy-duddy “Hamara Bajaj” image of the company.

Even as he was trying to get his divergent views accepted, by the late 90s, Hero Honda had dethroned Bajaj Auto as the numero uno of the two wheeler market. The bulwark of Hero Honda’s strategy was its biggest selling model, the Splendor. It sold 11 million bikes since it had been launched. At annual sales of 1.5 million, it was the single biggest brand in the world. Hero Honda accounted for two-third of all bike sales in India.

Splendor epitomised the needs of the Indian customer. They were willing to sacrifice performance for reliability and fuel efficiency. For Bajaj though, Splendor was the new Chetak. In many ways, it represented his dad’s why-fix-it-when-it-ain’t-broke philosophy. And that was anathema for the young man.

Initially, he looked to take on Splendor head on. His initial products did sell a few thousands but they were not even enough to compensate for the fall in scooter sales. Bajaj Auto had only two stroke technology as against Hero Honda’s more fuel efficient four stroke. When changing regulation made it unviable to make two stroke bikes, Bajaj Auto put out its first four stroke bike. But without strong technology support in the early days, every product failed against Hero Honda’s juggernaut.
The young Bajaj didn’t give up hope. He would zip around Pune in his Ducati Monster. Last year, he finally acquired another hunk of a bike: The Triumph Bonneville. “This is a beauty and the design is so easy on the shoulders,” he says.

To be sure, design and product engineering became his obsession. For over a decade now, he had launched a slew of new bikes. Every new project that his 150 member product development team took up was based on a very explicit brief from the MD. “What’s more, he usually throws in some very good suggestions on where to look for inspiration,” says a senior colleague. Each time a new bike was ready to be launched, it was wheeled out to the lawn in front of his home in the company’s Akurdi campus, and Bajaj would give the machine a good rip.


After trying hard for four years, Bajaj decided to change his strategy. He upped the ante, knowing full well that Honda wasn’t about to easily share new technology with its Indian partner. He decided to create a niche segment of sporty bikes. These bikes would have an engine capacity that was 50-80 percent more than Hero Honda and naturally, far less fuel efficient. His research team, headed by Abraham Joseph, put out the first Pulsar 150cc and 180cc models. Bajaj calls it their worst product launch ever. Unusually for a company that once ruled the two wheeler market, Bajaj had to extend the service warranty to keep sales going.

But things have vastly improved today. There were two things that Bajaj wanted to achieve with the Pulsar. He wanted to take his mind off chasing Hero Honda and instead create a halo around Bajaj Auto’s motorcycles. Pulsar did just that for him. The bike looked strikingly different. It successfully created a niche in the more expensive executive segment, as opposed to the entry level dominated by Splendor. That also gave Bajaj the comfort to launch new products that kept the competition busy. As he grabbed the higher ground with Pulsar, Bajaj thought it would be easy to attract new customers to his other products, especially those that directly took on Hero Honda’s Splendor and the slightly more powerful Passion.

Everything seemed on the right track till early 2007. Pulsar sales were topping 30,000 a month and Bajaj Auto was making more money on each bike it sold than ever before. Sales of its two models, Discover 125cc and 110cc, were slowly taking away share from Hero Honda. By 2006, the gap was just 32,000 bikes a year.

But at that point, perhaps Bajaj may not have fully grasped the significance of Pulsar’s success. He didn’t pause to reflect on why the Pulsar may have actually held the key to Bajaj Auto’s future. He simply moved ahead in his search for a new and better bike.

His team developed another model — XCD 125 packed with technology normally not available in entry segment bikes. By design, the bike was more compact to make handling easier. Bajaj pulled out the Discover 110 and replaced it with the XCD.

Customers rejected the XCD outright. They reasoned that a more powerful bike could not be smaller than the 100cc Splendor. The downturn didn’t help either. Says S. Sridhar, CEO of Bajaj’s two wheeler business: “As the economic conditions weakened, customers tended to feel safer buying tried and tested products.” Splendor sales shot up shortly after the launch of XCD. By the time the global downturn struck, Bajaj was in a complete funk. Banks pulled out of two-wheeler financing. Rural sales took a hit. And Bajaj Auto sales hit the lowest point in its history.

This may well have been the decisive moment. But at that point, Bajaj may not have clearly grasped the real significance of why XCD had failed — or the real lessons it held out. That realisation would emerge much later.

Meanwhile, by mid 2009, the picture had completely changed. Hero Honda had bounced back decisively. In the March quarter of 2009, it had made as much profit as Bajaj Auto had made in the entire year. For the entire financial year, its profits were nearly double that of Bajaj Auto.
Even as Bajaj was trying to regroup, by early 2009, Pawan Munjal, the managing director of Hero Honda laid out an audacious goal for his company: He would sell four million bikes, the highest that any two wheeler maker had done anywhere in the world in a single year. For the first two quarters, he appeared well on course.

The pressure had begun to mount on the young scion. “It was hard to miss the media headlines every other morning,” says a senior marketing executive at Bajaj Auto. As volumes nose-dived, dealers and vendors began to complain that their operations had become unviable. Analysts began to turn bearish. Bajaj Auto’s stock price plummeted to Rs. 296, its lowest level in the last decade.

It hurt even more because Bajaj Auto had always prided itself as a market leader. “The pressure on us was because of our own ambition. We wanted to do a lot. It was frustrating that we had come close to regaining that leadership and then lost it,” adds Sridhar.

Rahul Bajaj was equally concerned about the future of his company. Over the past one year, he began to hold closed door meetings with Rajiv, Sridhar and S. Ravikumar (vice president, business development) once every quarter. “He communicated his anxiety to us and listened to what we had to say,” says Sridhar.

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Rajiv Bajaj was chairing a session at the annual conference of the Society of Indian Automobile Manufacturers (SIAM) in the capital, in August this year. The discussion was about the entry of Harley Davidson and the need to raise the technological capabilities of the Indian two wheeler industry. A slightly emotional Bajaj admitted that Hero Honda had become so big that a small frog like Bajaj would have to jump out of the well. A few minutes later, when his chance came to speak, Pawan Munjal immediately picked up the gauntlet: “Why jump out of the well, when there is enough for everybody,” he teased.

But while many folks were trying to write him off, the young Bajaj was busy figuring things out for himself. “He was like a sponge taking in all the pressure all by himself. Never once did he transfer the pressure on to us,” says a close confidant.

Bajaj realised that getting his company back on the rails required a new kind of thinking. It needed two things: A single-minded focus and a more sustainable way to think about growth.

Now, Bajaj isn’t a big fan of management education. He says he doesn’t see “any science or logic” in decision making. “Which market to go to, what technology to pursue, what bike to make, should your approach be cost-based or premium? Everybody is entitled to their opinion, but how do you make a choice?” he says.

For the most part, he relies on his intuition. This time, he found the answers in two areas that had begun to take a lot of his personal time: Yoga and homeopathy. He had begun to practice yoga and got closely involved with the renowned B.K.S. Iyengar yoga school in Pune.

Yoga helped him focus. Homeopathy aided him in identifying the principle on which to base the company’s growth. It started by strengthening the body (company) inside out. “So before you seek collaboration, try to have your own R&D; before you export everywhere, first you ask if you quality is up to standard; before you bring in consultants, first you ask yourself what you can do as an organisation, HR and training,” he says.

Next, he began to search for a new lever that would help him compete. He quickly realised it couldn’t be distribution or low-cost manufacturing. That was easy to replicate. It had to be the brand.
Yet the Bajaj brand had itself become a liability. “If you say Bajaj, you don’t know what you are saying. Is it Pulsar, is it Platina, three-wheeler or is it the Bajaj tube light or hair oil or general insurance or what the hell? Nobody knows what Bajaj is now. It is completely diffused,” he says.

And that’s where he drew some lessons from the works of Al Reese and Jack Trout, the branding gurus. “All successful businesses start with one sharp positioning. And the problem is when people brand extensively and diffuse their pricing power in the marketplace and screw up their business,” adds Bajaj.

That was pretty much the state of affairs at Bajaj Auto. Over the years the company has had several brands: Platina, Discover, Boxer, Kawasaki Caliber, Pulsar, XCD. Bajaj figured it wasn’t too late, he still had a chance to learn from the people who had done it the smart way. And the auto industry is replete with examples of successful brands like Toyota, the world’s largest auto manufacturer and Harley Davidson, the Milwaukee, Wisconsin-based motorcycle manufacturer.

For instance, Toyota had created a separate brand for its small car range under Daihatsu, leaving the mid-sized cars to itself and the top-end cars for Lexus. The truck business is carved out for Hino. That way, it helped consumers identify more clearly with the company.

And once a company has a clear brand positioning, pricing power follows automatically. Like Harley Davidson, Porsche or a BMW.

The key was specialisation. But to achieve that focus, Bajaj could no longer work with a buffet of brands. “As we like to say internally that a zoo has no pedigree,” says Bajaj. In simple terms, the positioning has to be clear. For India, which is the largest mid-space motorcycle market in the world, he is banking on one brand to deliver the goods: The Pulsar.

For a company to be successful, it needs to define its core or a centre. For Bajaj, Chetak had been its core, be it in terms of technical skills, cost structures, consumer’s perception or capacity. Whether it was Priya, Classic, Super or Bravo, it succeeded as long as it came from the Chetak DNA. The problem with that is you couldn’t replace a Chetak with a better Chetak. Both LML and Honda had tried it, but it hadn’t worked.

To beat Chetak, you needed a diametrically opposite concept. And that’s exactly why Hero Honda’s Splendor became the reference brand in the two wheeler category. Chetak was a relatively cheap, two stroke Indian scooter, with a foot shift and small wheels. Splendor, on the other hand, was a more expensive, four stroke bike, with large wheels and a Japanese pedigree.

This was equally true for the Maruti 800 when it replaced the hoary Ambassador. “We realised that you cannot replace a Splendor with a better Splendor. That position is taken; we have got to do it differently,” says Bajaj.

In many ways, Pulsar had done just that. Pulsar may have had quality issues, but the fact that it was the only sporty bike of its kind, meant that consumers were willing to forget its niggling problems. In 2001, when the Pulsar was launched, everything about it was different from the Splendor: For small, it was big; for slow, it was fast; for fuel efficient, it was powerful; for cheap it was expensive; for sober, it was sexy; for Japanese, it was Indian. “This is why the Pulsar succeeded. So we said we need a new centre. Pulsar is the new centre. Everything we do coming from Pulsar will succeed as long as people want a Pulsar,” adds Bajaj.

The Discover 100cc was built on this principle. “The first reaction you get from people is that this bike looks very much like the Pulsar,” says S Sridhar. Behind the scenes, a lot of work has gone in to make that happen. While the Discover 100cc has been in development since 2007, it was not scheduled for launch in 2009. “We fast tracked the product development by almost a year,” says Joseph. “It is a completely new engine and transmission while retaining the design aesthetics of the Pulsar.”
If the sales numbers are anything to go by, the strategy seems to be working. Sales in November compared to last year have gone up by 100 percent. And now the company says it will concentrate on building just two brands for the domestic market: The Pulsar and Discover.


The bad news: Sales may have taken off so sharply that Bajaj could land up with a peculiar problem on its hands. On the dint of its sheer volumes, Discover could displace Pulsar and become the ‘centre’.
That is perhaps why the company is quickly pushing through a new Pulsar 135cc to strengthen the core Pulsar brand. This is pretty much Bajaj Auto’s flanking strategy to take on Hero Honda. “The Discover 100cc will compete with the Splendor and the Pulsar 135cc with the Passion,” says an equity analyst who didn’t want to be quoted. At this stage it isn’t clear how Hero Honda is going to respond to Bajaj Auto’s move. “Hero Honda could respond by price cuts in order to protect its market share. However, given the much-higher contribution of the Splendor to Hero Honda’s volumes it would hurt Hero Honda more than Bajaj,” says Jatin Chawla, research analyst at stock brokerage firm IIFL.

By all indications, the results of Rajiv Bajaj’s new strategy will only become apparent by February next year. But now that the new strategy is in place, his marketing folks say that Bajaj is piling on all the pressure on the team to swiftly execute the strategy and deliver the volumes the company needs to regain its poise.

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BAND OF BOYS: With a mix of experience and passion, this bunch of loyalists works with Rajiv Bajaj to pull off the impossible

1. Kevin D’sa
president, business development and chief financial officer (55)
Been with Bajaj Auto for 30 years, has seen it through the toughest years, 1999-2001. Is one of the few people “who believed in Rajiv and came out with him”. Doesn’t believe in building products for emotional reasons, is responsible for keeping a close watch on bottom line contribution.

2. Pradeep Shrivastava
president, engineering (45)
Is really Bajaj’s manufacturing engineer. Rajiv Bajaj is proud of the Chakan plant and he has Shrivastava to thank for it. He is the point man for Bajaj’s interest in KTM, the Austrian super bike company in which Bajaj has a 31.72 percent stake. Currently, he is busy working on building a KTM bike to be manufactured by Bajaj.

3. A. Joseph
president, research and development (42)
Joined Bajaj Auto in 1989 as graduate trainee. Picked up by Rajiv Bajaj to be a part of the method improvement team at the Chakan factory and later lead the Pulsar R&D. Brain behind almost every motorcycle in the portfolio. Ensured the launch of the Discover 100cc a year ahead of schedule.

4. S. Sridhar
chief executive officer, two wheelers (47)
Joined as general manager, sales in 2001. Was Rajiv Bajaj’s key aide throughout the slowdown. Putting an end to the research report and data mining culture, he got involved directly into customer, vendor and dealer relations. When volumes hit rock bottom late last year, Sridhar maintained the ‘fight back spirit’ by resolving differences and dispelling self doubt among the stakeholders.

5. Rakesh Sharma
chief executive officer, international business (47)
Has been at Bajaj only for the last two years. Responsible for driving Bajaj Auto’s presence in Africa and the Middle East at a time when Indian market was reeling under the credit crisis — region’s share rose from 30 percent of the export business in 2007-08 to 43 percent in 2008-09. Under him, Bajaj registered a 91 percent growth in Nigeria.

6. S. Ravikumar
vice president, business development (52)
Rajiv’s big picture man. When the chips were down last year and Bajaj Auto had an opportunity to increase their stake in Austrian bike maker KTM, Ravikumar did not bat a eyelid. He argued that long term programmes should not suffer from short term upheavals. Ravikumar claims that plans for Brazil and China, two large motorcycle markets, are also on track without a change.


(Do read our exclusive Twitter Interview with Rajiv Bajaj)

 

(This story appears in the 18 December, 2009 issue of Forbes India. To visit our Archives, click here.)

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  • Gurumoorthy

    It is very interesting to learn Rajiv benefited a great deal from Yoga and Homeopathy. A business tycoon recognising and in fact attributing his success to Homeopathy and Yoga is wonderful indeed.

    on Mar 1, 2010