Most successful brand Hero Honda is no more

by khalid on 18/12/2010 · 0 comments

Hero Honda is the most successful brand name in India. It is the largest player in the market in two wheeler segment. The exit of Japanese Honda Motor Corp from a joint venture with the Hero group may open new avenues for India’s number one two-wheeler maker. Technology is the heart and soul of any automobile. Honda, which provided the technology to the company, was never too happy with its 26 per cent share of the dividends and royalty; it felt its contribution was way bigger.

Hero Honda shareholders have been a worried lot ever since it became clear that the two equal partners in the company, Honda of Japan and the Munjal family, had decided to part ways. Will the company have a future without Honda? After the exit of Suzuki from a joint venture, TVS Motors took many years to find its bearings. Will this be the case with Hero too?

The motorcycle market in India is extremely competitive, with half a dozen serious players. Hero Honda, in its new avatar, has to find its space here. Exports were never a significant option, as it could sell only in those markets where Honda wasn’t present. Hero Honda’s stated plan is to launch eight to 10 new models or updates every year to stay ahead of rivals. For this, it needs technology.

Automotive analysts feel the Munjals must have invested in research because the tension with Honda had been simmering for a while. The first indication came almost 10 years ago, when the agreement was rewritten and Honda allowed to sell scooters to begin with and then motorcycles, on its own.

Some feel consumers buy motorcycles by the brand – Splendor, CBZ, etc – and do not go by the technology provider’s name. In fact, Hero Honda has worked in the last three to four years to create enough differentiation between all its brands. It has also sharpened marketing skills. It studies consumer behaviour as minutely as perhaps a fast-moving consumer goods company. All advertisements are first run past a sample of consumers for feedback. It has a bevy of celebrities to endorse its products and had built strong emotional connections with consumers in the fields of cricket, music, movies and adventure – the zeitgeist of the youth.

Hero Honda also has formidable strengths in the rural market. This came to light in 2007 and 2008, when there was a credit squeeze. The market went into a tailspin but Hero Honda sales didn’t dip. This was because rural purchase remained buoyant – these buyers pay upfront and do not purchase on instalments. The company reckons that 40 per cent of its motorcycles are bought by rural folks. (This is just an estimate, because all its dealerships are in towns and cities.) It then set up a rural division, with a team of 500 salesmen to contact buyers in these markets. Farmers, the company knows, have money in their pockets twice every year after they have harvested their crops. That is when it launches special waves to sell to them.

As per the new licensing arrangement between Hero Honda Motors Ltd and Honda, the Indian entity will be free to start its own research and development (R&D) capabilities and exploit global export and manufacturing opportunities. The Hero group, promoted by the Munjal family, will buy Honda’s entire 26% stake in the joint venture for an undisclosed sum.

With both companies deciding to end their 26-year old partnership, the question being asked is what may have caused the split? There are two likely reasons. One, the increasing cost of royalty and technology (R&T) and second, the growing presence and market share of Honda Motorcycle & Scooter India (HMSI), a 100% subsidiary of Honda.

In the 1980s, Hero Honda grabbed everyone’s attention with its campaign ‘Fill it – Shut it – Forget it’, which emphasised fuel efficiency of its vehicles and helped the company grow at a double-digits. Now, Hero may have to revise the ‘Forget it’ part, to re-invent (especially, its R&D capabilities) and refill (the euphoria, once attached to it), to survive in the coming years.

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