Business - What's Hero Honda doing right?

Sindhu Bhattacharya

NEW DELHI: Hero Honda Motors, the New Delhi-based auto giant, has been enjoying a surprisingly good run over these last few months, surpassing the overall market growth rate. Last month, its sales were up by 28.5% against the industry average of only 16% and, in the April-August period, the company logged a 19.2% increase versus the industry’s mere 12%.And this good run may continue well into the festival season, with the company targeting sales of more than 5 lakh bikes and scooters. In fact, four lakh units are expected to be sold in October alone, according to dealers. Average sales for the last five months have been a little less than three lakh units.So what is Hero Honda doing right that the competition isn’t? Bajaj Auto has seen August sales decline by 3.7%. Its sales growth was virtually flat during the April-August period. TVS Motor has also seen sales stagnate, with a growth of only 1.15% between April and August.Hero Honda’s success seems to be a result of aggressive focus on the semi-urban and rural markets. Anil Dua, senior vice-president (sales & marketing), told DNA Money that a dedicated vertical called ‘Har Gaon, Har Aangan’ was launched some months back to generate sales in rural and semi-urban areas.“We realised that, while two-wheeler penetration in urban areas is 25%, it is only 10% in rural areas and so the latter segment needs to be tapped more extensively. Under the rural vertical, we started collecting a lot of data at rural touch points…….many of our dealers are now meeting sarpanches, headmasters, aanganwadi workers and other opinion makers to understand the rural consumer better”. The rural initiative generated sales of 16,000 additional bikes in a single month.Besides refreshing its entire product range over the last year-and-a-half, Hero Honda has also strengthened its distribution network considerably. The number of touch points (dealerships plus sales and service outlets) is already 3,000 and another 500 would be added by March. A majority of the new touch points would be coming up in the hinterland, tier-II and tier-III towns and suburbs of larger towns, indicating a subtle shift in the company’s strategy towards addressing newer two-wheeler audience. But the urban consumer is not being left out in this chase towards villages and smaller towns. The company has already begun a new advertising campaign and is also laying stress on high-end bikes in a bid to generate sales.Dua said the latest commercial featuring Hrithik Roshan, Priyanka Chopra and six cricketers, is perhaps the longest ad, at three minutes. According to the latest report by Ashutosh Goel and Amol Bhutada of Edelweiss, dealer inventories are down to 15-day levels against the annual average of 20 days for Hero Honda but an overall sales pick up is expected only from January, with the onset of festive season in south India.Like with other two-wheeler makers, Hero Honda purchases have also seen an increase in the cash versus financed buying from 60:40 earlier to 70:30 now. Despite Hero Honda’s claims of doubled market share in the premium segment, Goel and Bhutada said that Bajaj’s ‘Pulsar family’ has been able to maintain market share, despite recent launches of the Hero Honda Hunk and TVS’ Apache RTR 160. When asked about the company’s over dependence on the 100 cc market, Dua said that though the share of 100 cc in the overall bike market has been declining, this segment has still managed to show a maximum growth at 16% during the first five months of the fiscal.