Strategic Thought Transformation - The IIPM Think Tank

S T R A T E G I C I S S U E S
mind. This smarter consumer was now
feeling the heat of rising fuel bills, and
it was then that the two stroke appeal
started diminishing. The consumer
now wanted a motorcycle that offered
decent power delivery, but most importantly,
had the inherent quality of
saving some greenback. Hero Honda,
as a product of casualism, had already
established itself as a manufacturer
of fuel efficient bikes and hence had
a very important factor in its favour
– perception.
Concept: Marginal Utility
For normal products, the law of diminishing
marginal utility applies; that
is, with increasing usage, a consumer
perceives lower and lower additional
utility from the product. Hero Honda,
due to multiple innovations in Splendour,
succeeded in reducing the normal
diminishing marginal utility curve to
lower levels than those of competitors,
thus ensuring that competing products
ran out of business faster than Splendour
did; in other words, they ensured
that the PLC of Splendour was more
elongated than that of competing products.
The Hero Honda Splendour, right
from the day of its inception, has been
a super seller and enabled the parent
company to explore never before levels
of production dynamics. Though the
Splendour motorcycle was not able to
achieve as high a cult status as that
enjoyed by the erstwhile leader Yamaha
RX 100, it eventually did become the
largest selling motorcycle in the entire
globe. Right from the fresh designed facia
of the motorcycle to the ergonomically
fitted tank merging with the side
profile, the bike was as classy and contemporary
as 100 cc bikes could be. The
Japanese connection gave Hero Honda
access to varied Honda technologies,
indigenization of which gave a very
balanced single tube frame mated to
a dependable and efficient motor. The
whole Indian bike commuter fraternity
was hooked; Splendour was selling like
hot cakes. The utility of the product
was much higher then the money spent
on it (the cost of the bike, its maintenance
and fuel). High fuel average
meant more savings and this stuck a
chord with the consumer. It was exactly
what the consumer wanted.
Concept: Market Perception
And the surprising part was, those were
not only the 18-25 age groups which
were spreading Splendour sales in the
country, but also significant segments
that were formerly ‘scooter’ customers.
The diminishing utility of side engined
scooters predominantly from the Bajaj
stable was an important cause as well.
The middle class Indian too started
losing interest in the scooter; as the
product was plagued by ‘too long in
the tooth’ dilemma along with poor
image. Commuters started seeing a
With increasing
income levels, a
need to move up
the value chain
enticed ‘scooter’
owners to take a
serious look at
the Splendour
well rounded commute means in the
Hero Honda Splendour as the bike not
only offered a higher image but offered
higher fuel average helping in savingspivotal
for a middle class Indian family
man. A need to move further up the
value chain enticed more and more two
wheeled commuters to seriously take
a look at the Splendour. The no nonsense
bike was seriously turning positive
market perception towards itself,
as it was the only well rounded product
on offer. With growing sales numbers
the Splendour started making a brand
for itself, with a bonus feather in their
cap being the good resale value – a
factor important for the middle income
& youth segments. By 1995, Splendour
was seen as the smartest proposition
in terms of ‘investment’.
Concept: Old is not Gold
But one product does not a company make.
And even though the PLC was elongated,
Hero Honda was never in a malignant
dream that the PLC would continue till
eternity. Expectably, now that the great
Splendour is getting old and looks dated
in light of fresher competition, the market
is slowly moving towards higher segments,
especially in the premium (125-250cc) segment.
According to SIAM, this particular
segment grew by about 34% in 2004-05.
Not to be left behind, Hero Honda
has already launched an upgraded 125cc
version of its old work horse; while still
continuing to sell the older 100cc – a
classic PLC extension strategy. Clearly,
what Hero Honda has achieved through
the Splendour, has benchmarked strategic
learning in the automobile industry
as competitors now understand that it is
not enough to appreciate what consumers
want today, but most necessarily what
consumers might want in the near future.
With upgrades entering the industry at
the speed of light (figuratively), it won’t
be long before 1000cc bikes are more a
regularity than an exception. But then,
that is another case...
Karan Mehrishi is on the
editorial desk of Business & Economy,
India’s most influential magazine
10
An IIPM Intelligence Unit Publication