"Brand Is Our Lever"

Rajiv Bajaj on why sharp positioning is key to pricing power in the marketplace

Published: Dec 16, 2009 12:47:58 PM IST

Updated: Dec 15, 2009 06:48:58 PM IST

You believe very strongly that in management there is no science. How did you arrive at this belief?

Rajiv: In management there is no science. Even in cricket there is a science. You know he will tell you how to stand, hold the bat; you look at your replay 10 times and then correct your posture. But this damn MBA there is no science. The proof is that Harvard Business School’s teaching methodology is case study methodology. You take a case, you read it, discuss it with people and then come and debate it. So six people in the room will have six opinions, nobody needs to be right or wrong, it is only how well you articulate yourself that determines how well you have done.

So, I told my chaps, we have to find something firm to stand on. Otherwise, which market to go to, what technology to pursue, what bike to make, should your approach be cost approach or premium? In management there are only two ways to make a choice; either it is top down or bottom up.

So, how did you arrive at your differentiating strategy?

Rajiv: I personally turned to two things. One was the science of yoga because of the presence of B.K.S. Iyengar in Pune who is now 91 and still does three hours of yoga every day. The second was homeopathy from which I learnt a lot about what actually is disease and what actually is cure!
So we said we must go the homeopathic way — basically strengthen the body inside out; so before you seek collaboration, try to have your own R&D, before you export everywhere, ask if your quality is up to standard, before you bring in consultants, ask what you can do as an organisation, HR and training. So, first you strengthen yourself inside out and see how much you can walk. After that if you need a crutch; take a crutch.

So, the question was which lever should we work on and we chose the lever of brand. We found the best ideas of brand came from the works of Reese & Trout. So we put yoga, homeopathy and the works of Reese & Trout together.

Why did you choose brand as the differentiating strategy?

Rajiv: The reason we chose brand is this: A brand is something unique that is positioned in the mind of the customer. And the problem is people brand extend and diffuse their pricing power in the marketplace and screw up their business. All successful businesses start with one sharp positioning, they stray from that centre then they fail provided the competition is smart. So we said look at Honda; from a 50cc scooter to an Accord everything is Honda. Even the jet they are making is a Honda. This is a huge stretch of the brand. How can they? And it is the same for Yamaha or Suzuki? It doesn’t make sense. Which is why even today although people like Harley Davidson, KTM, Ducati, BMW, they don’t have anything superior about them compared to the Japanese in terms of technology or quality, but if you see pricing power in the market place they will still have 20-30 percent more pricing power compared to the Japanese despite the huge size of the Japanese. In one word, if you say what is the strategy for the auto industry, it is specialisation.

Couple of years’ back you had taken the call not to participate in the 100cc segment because Hero Honda was so beautifully positioned there. As we know you have revisited that assumption. What really happened at Bajaj Auto?

Rajiv: Before we get to that let me tell you where I am coming from. Because then it is easier for me to explain why as Bajaj we think in a certain way. We sat in this room, my team and I, little more than two years back. We asked ourselves a very fundamental question in a very practical way; why will Bajaj exist five years from now? So we said to ourselves, look at the Japanese who are our typical competitors, not the Chinese because they compete in a different space, very low cost and maybe low quality. And of course we are not a premium brand like the Harley, KTM or a Ducati. So we are in the mid space and we are asking ourselves; what is the lever of the business which is clearly in our favour? For example, is our technology way ahead of the Japanese which means primarily Honda and Yamaha? We don’t think we can say yes to that. Can you be another Toyota where the perceived quality is way ahead of everyone else?

It is important. Even if you look at the Indian market over the last few years, products which have not done really well and everybody has a few of them; it is nothing to do with reliability. You don’t meet consumers who are saying this breaks down, falls apart or corrodes; it’s not a quality issue. Can it be distribution? If Dell can make a business out of distribution, can we? It didn’t seem to be the case. Because again in a global context the Japanese distribution is far ahead of us. Can it be cost? But now with the kind of volumes the Japanese have in China, India, Thailand and other places, it is a fairly low cost or competitive cost situation. So, is cost really a lever anymore? So, we struggled to find any particular lever.

So, we said to ourselves, this is what is happening; on the one hand if Indian companies in the tow wheeler space don’t have any competitive edge, don’t have any USP, lever or whatever you want to call it then they will die in proportion to their size. So if you are that small like Kinetic or LML; you die first and then we know where TVS is financially speaking and then Bajaj is a little bigger, it will last a little longer. Similarly if you look at how the Japanese are, they are all the same; whether is a Honda, Yamaha, Suzuki or a Kawasaki—really what separates one from the other? As a consumer, how do you choose between a CBR, R1, Hayabusa and a Ninja? Typically, all that happens there also is that sales fall in proportion to their size. So, when everybody is the same, you get graded just on the basis of your size and that will never change.

What is your global strategy?

Rajiv: It is different for each of the three like Boxer is different, for Bajaj what we have to do is different, for KTM what we have to do is different. And again it is a story of less being more. All we said to ourselves is that the naïve interpretation of globalization is wrong; you have to go to 150 countries and all that. So we are asking ourselves that for each of the three brands which are the most resonant points. We just have to do that instead of going all over the place. Then the complexity comes up which means servicing all those customers and dealers. KTM is a separate product, their markets are USA and Europe. We don’t play that much of an active role in KTM. As far as Boxer is concerned, we knew that China is the biggest market.

Out of 14 million motorcycles, half are sold in China. But 4 million are sold in Africa. But China we didn’t want to go immediately as it is fraught with all kinds of IP problems and all. So we decided to go to Africa where the biggest was Nigeria, somewhere between one and one and a half million. That means roughly eighty hundred thousands bikes a month. So we went there four years back. And we are now averaging roughly 25,000 bikes a month. So we already have 25% share. And what is more interesting in my opinion is that we sell at a premium of almost 50% to the market leader which is a Chinese company. So what this shows is that quality is important everywhere in the world. It is only the marketing people who often think that price is more important. Actually consumer is not like that. So now total Boxer we sell is 40,000 a month. So we have identified what are the relevant markets to go to. And similarly we said that for the mid market we will first go to Indonesia because of the mid market 10 million, 7 million is India itself. The reason we chose Indonesia is because Brazil is already a motorcycle market. So in keeping with our strategy to do the opposite we went to a step through market to sell motorcycles.

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