Consumer Buying Behavior in Indian Motorcycle Industry

Marketing Group Project MOTOR CYCLES

Group – B3 Ashok Kumar Verma Ashwani Panwar Avnish Kumar Bipin Kumar Singh Debanjan Munsi Dinesh Kumar Soni Naresh E Rakesh Surineni 1|P a ge

0083/48 0084/48 0091/48 0096/48 0107/48 0118/48 0122/48 4022/18

Contents ABSTRACT........................................................................................................................................ 3 Project Objective .......................................................................................................................... 3 Brief description of Indian motorcycle industry ................................................................................. 4 Key players in the Two-wheeler Industry....................................................................................... 5 Analysis............................................................................................................................................. 6 General Information from the Survey ............................................................................................... 6 Segmentation of Consumers on the basis of age........................................................................... 6 Segmentation of Consumers on the basis of Income Distribution ................................................. 8 Primary Purpose / Use of the Bike ............................................................................................... 10 4Ps of Marketing ............................................................................................................................. 12 Price ............................................................................................................................................ 12 Product ....................................................................................................................................... 12 Product Life Cycle ................................................................................................................... 12 Place ............................................................................................................................................13 Promotion ................................................................................................................................... 15 Impact of advertisements........................................................................................................ 15 Customer Evaluation and Response ............................................................................................. 17 Conclusion ...................................................................................................................................... 18 Additional Considerations ............................................................................................................... 18 Sources ........................................................................................................................................... 20

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ABSTRACT Four major factors that influence consumer buying behaviour are 1. Personal factors 2. Psychological factors 3. Social factors 4. Cultural factors Main focus of marketing lies on consumer and product and making value propositions to consumers. Personal factors that determine consumer behaviour are personality, attitude, values, gender, marital status etc. Social factors like family, reference groups, role, and status also influence purchase decision. Psychological factors that influence consumer behaviour are motivation, perception, learning, belief etc. Cultural factors are social class, and factors specific to different regions.

Project Objective The objective of the project is to study the consumer buying behaviour and analyze the effect of 4Ps of marketing in the context of motorcycle purchase decision. The effect of consumers’ opinion of motor bikes regarding features like appearance, mileage, price, brand etc and other factors that impact consumers’ choice of a particular brand of motor bike was studied. Scope of Project – Scope of project was limited to study consumer behaviour and the effect of 4 Ps i.e. Product, Place, Price and Promotion on the consumer buying decision. Project approach We studied motorcycle market in India and its growth. Major players in Indian motorcycle market were studied to find market leaders and four dealers of different brands were selected for dealer survey. Primary as well as Secondary data was collected to know consumer preferences while making purchase decisions. We studied all possible factors that influence purchase decision and consumer behaviour. Then a questionnaire was made for consumer. A consumer survey of sample size 150 was done to study consumers’ response to major factors that affect decision making in motorcycle market. A dealer survey was also conducted to know the consumer preferences from dealers’ perspective. A dealer questionnaire was also prepared and a dealer survey of four dealers was done. Dealers of following brands were surveyed for this purpose: 1. TVS 2. Bajaj 3. Honda 3|P a g e

4. Hero (earlier known as Hero Honda) Data from annual report of motorcycle companies was also collected. The data collected from various sources was analysed and interpreted. Based on interpretation of data conclusions were drawn.

Brief description of Indian motorcycle industry Indian motorcycle industry: India is the second largest manufacturer of two-wheelers in the world. Bikes constitute major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian two-wheeler industry had a small beginning in the early 50's. The two-wheeler market was opened to foreign competition in the mid-80s. With the availability of fuel efficient low-power bikes, demand swelled. This resulted in the introduction of four stroke bikes (100cc category) which gained the top slot. The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. In the 90s the major growth of annual growth rate of 25% on an average for motorcycle segment was brought mostly by Japanese motorcycles. With a successful launch of ‘Pulsar’ Bajaj entered high-power bike segment in 2001. Indian population prefers two wheelers because of their small manageable size, low maintenance cost, lower price, easy loan repayments and the fact that in India roads are congested and narrow. Motorcycle market is composed of broadly two segments: Regular segment and premium segment. Regular segment mainly represents need based market segment where motorcycles are used for office commutation, business purpose and other local travel of needful nature. Basic features of bike are main consideration. Premium class motorized two wheelers are seen as a status-symbol by the rich and the youth and style, engine power, brand etc are major influence on purchase decision. Indian two-wheeler industry has grown at very fast rate in the last few years. Major Factors which led to growth of Two-Wheeler industry are –

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o

The Gross Domestic Product has grown at 8%

o

The average family income has increased

o

Financing has become easier

o

Reduction in taxes and duties

o

Introduction of international standards in India

o

Economic and fuel-efficient engines

o

Teenagers and youth using more and more motorcycles

Indian two-wheeler industry has grown at rate of 25% in 2009-10 and 27% in 2010-111 and reached a size of 13.3 million units. ICRA expects two-wheeler industry to grow at CAGR of 10-12% in next five years to reach 21-23 million units by 2015-16. Hardening interest rates, increasing fuel costs and rising commodity prices may lead to moderation in growth rate of this industry growth in the short term, but medium to long term growth rate is expected to remain high. Several new players may enter into Indian market; in fact Mahindra launched a motorcycle last year. Entry of new players will intensify competition. Future growth is likely to come from rural and semi-urban areas. Premium segment growth will come mainly from urban and semi-urban areas and new product development or entry of new foreign players. Wide distribution network, Strong product capability and supply chain will be the necessary conditions for competitive advantage.

Key players in the Two-wheeler Industry: There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS). The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI). Data collection: As a part of this project, we mapped the customer preferences by direct data collection from consumers and visiting four motor cycle dealers to understand the retail scenario. The customer-surveys were one-on-one surveys, surveys using social-networking platforms like facebook and online survey tools like survey monkey, with consumers spread across various age groups, socio-economic backgrounds and occupations to get first-hand information on what factors affect their buying behavior. We also studied the effect of factors like the brand value, price, latest fads, maintenance costs, advertising (both TV and newspapers), advice sought from friends and colleagues, the craze among youth for motorcycles and social status issues affecting the consumer. We extracted information regarding the effects of pricing and design on motorcycle purchase from dealers. Other important information was also obtained with the data collected from sources including effects of colours and designs on purchase behavior. We also used secondary data collected from the various databases and other sources to analyze the present Motor Cycles market.

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Analysis:  

Customer buying behaviour analysis: Understanding customer preferences and factors that affect the buying patterns Motorcycle is a limited occasion or one time purchase for a large section of Indians thus involving a lot of thought and deliberation. So we looked into the factors from whom the buyer seeks opinion while buying a motorcycle. These factors are Family, Friends & colleagues and dealers.

Figure 1: Sources of advice As per the data collected most buyers seek for the advice of their friends and colleagues indicating the factor that motorcycle is a public luxury that has a high status value and the comments and experience of friends and colleagues are adhered to in more than half the cases. The family opinion is very low coming to only 18% and the individual decision without taking advice of anyone is 20%, which indicates that some people may be very individualistic in their choices and are not influenced by the family and society advices. The dealers’ influence in customer decision is very minimal indicating the role involvement of dealers being limited only to selling the bikes.

General Information from the Survey: Segmentation of Consumers on the basis of age

56%

44%

25

Figure 2: Age groups of respondents 6|P a g e

Our main focus was on getting data from younger groups as we expected the general motorcycle consumer to be from mainly two groups – 1) Young and Dynamic: People in the age-group of 18-25 who purchase mostly high end bikes.

Figure 3: Preferences of relatively young respondents This group’s purchase decisions are starkly influenced by brand name and style than by any other issue. So if we analyse on the importance weights given by the number of respondents, a large percentage of them considered driving comfort to be of paramount importance followed by Style and Brand name. For this particular consumer group price is a secondary issue and mileage also takes a backseat. Surprisingly, maintenance and warranty issues are also considered moderately important even though our expectations were that their importance score would be quite high. 2) Middle aged groups: People in the age-group of 25-45 who are generally married men with a family who purchase durable and high comfort level Motorcycles

Figure 4: Preferences of middle aged respondents 7|P a g e

This group’s purchase decisions were primarily focussed solely on price and mileage. The choices of motorbikes were primarily focussed on these two. Again surprisingly brand name is given high moderate importance in making the purchase decision with maintenance and service quality taking the back seat. This can be explained by the fact that due to rising income levels, people prefer buying a new motorbike than repairing an old one. The costsensitive consumer who would put that on a high importance list seems to be markedly absent and the market scenario seems to suggest a change but more study needs to be done to make any credible conclusions. The data collected from the dealers confirmed the above inclination of the young population as the maximum bikes sold by the 3 dealers in last 6 months to the age group (25-35) are high power bikes mostly of more than 150CC and to the age group (>35) are bikes less than 135CC. The above results are also supported by the dealers’ survey result where the only thing we could make out extra is the colours of the bike which dealers rated as a very high influence factor.

Segmentation of Consumers on the basis of Income Distribution

According to the research results shown in the graph, the middle class segment which falls between Rs90000-500000 is increasing at a very faster rate and our sample size consists of respondents from this middle class group.

Figure 5: Income groups of respondents 8|P a ge

The Income distribution was mostly on a monthly income basis, with survey concentrated on moderately high income groups. 1) Moderate to Low income group: Monthly income less than 30000 per month.

Figure 6: Preferences of Moderate to low income respondents If we consider the importance weights given in the above graph, we can safely conclude that mileage and maintenance get a huge importance alongwith brand name. Surprisingly price and style are not that important. The price-sensitive consumer seems to prefer a lower running cost over initial purchase and driving comfort seem to be getting a due importance due to changes in perceptions among the consumer group.

2) High Income group

Figure 7: Preferences of High income respondents

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Primary Purpose / Use of the Bike

Figure 8: Primary purpose/use of the bike

Figure 9: Occupation Distribution of Customers Surveyed

We found that most motorcycle users are working professionals and a large percentage of students.

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The survey conducted by ICRA in Delhi to know the most economical mode of transport shows that 2 wheeler holds 2nd position and that is the reason preferred most by the working professionals and students as mode of transport. That means external sources like petrol prices could be an importance factor in consumer buying behavior due to which consumer can delay the buying decisions or may opt some other means of transport like public transport.

Figure 9: Importance of various factors From an overall importance chart, we can infer that price, mileage and style have a very high importance for most consumers validating the claim that for a medium priced product like motorbikes where consumers take time to make their decision overall effectiveness of the purchase is evaluated on these dimensions and in a price-sensitive country like India, price is likely to dominate the purchase decision. But, what was surprising from the survey is that, comfort level was given an extra-ordinarily high weightage with Maintenance and service costs not so important. Hence, companies like Honda Mortorcycles India Limited are not at a significant disadvantage due to lack of adequate number of distributors. Warranty and free service also score significantly low making any efforts in that direction not worthwhile for the marketers.

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4Ps of Marketing: Price:

Considering a separate analysis on the effect of price overall, we found that a moderately large proportion of people considered price an important determinant in their purchase decision while a slightly smaller number reported it to be extremely important. We can infer that in the final choice of the product, price is an important determinant in a price-sensitive market like India

Product: Motorcycle as a product can be broadly divided into 2 categories 1: Mileage oriented The mileage oriented segment consists of 100 cc to 125 cc bikes which are low on power but offer excellent mileage and great value for money. The major consumers in this segment are daily commuters who require maximum fuel efficiency and low maintenance costs. The price range starts from Rs. 35000 to Rs 45000. The top bikes in this segment include Platina and Discover from Bajaj Auto, CD Dawn and CD Deluxe from Hero MotoCorp. 2: Design and comfort oriented This segment includes bikes above 125cc and is more youth centric who give design, style and power more preference to mileage and are willing to pay extra for these features. These motorcycles are sporty, well designed and more powerful. These motorcycles largely attract young riders passionate for style, performance and comfort. The price range in this sector is from Rs. 50000 to Rs 70000. Product Life Cycle

The Indian Motorcycle industry is extremely competitive and with the advent of better technology the life cycle of the product is getting shorter. The ever changing demand of consumer has put more pressure on the manufacturers to come out with new innovations and better designs in the product to capture greater market share. Thus the manufacturers are putting more focus on Research and Development and coming up with new models of 12 | P a g e

improved technology to serve the market. The effect of shorter life cycle can be seen as companies phase out their old models and producing new and different variants of the models which are popular with consumers. The examples for this are different versions and variants of Bajaj Pulsar where the company is launching a new model every year with enhanced features and better technology. The below table shows the average age of motorcycle in India.

Place: In Indian context the motorcycles are sell/ Purchase through very limited number of marketing channels. The major types of marketing channels are as follows1. Company’s Outlet 2. Company’s Dealer 3. Sub- Dealer Market Segment These marketing channels are basically work in coordination with each other in different demography and geography to cater the need of different market segments. These segments are as follows-

   

Metro Cities Urban Markets Semi Urban Market Rural Market

Company’s Outlet is specially worked to target consumer in Metro cities. In these markets the sale is normally higher than other segments and purchase is driven by performance, comfort and brand equity of the motorcycle. In metro cities the consumer’s disposable income is higher than that of other segments so purchase is not much affected by price factor. So, companies prefer to open there own outlets in metro cities which help them to save on dealer margin and maintain the brand equity in term of product and service quality. It also help to serve the products meant for niche segment. Urban market segment is target by company’s dealers, this dealer network work on the franchise model. Dealers are allotted as per company policy and the motorcycles are delivered to them from company’s production unit directly as per sales forecast and prior booking. These dealers are more familiar with the local requirements and consumer behaviour. 13 | P a g e

Semi Urban Market and Rural markets are targeted through the intensive distribution network of dealer and sub dealers. This model is also work on the franchise model and quite helpful in market penetration and growth. The various factors which affected the sale growth through these distribution networks are as follows    

Place and Position of dealer Customer friendly Finance options Schemes and discounts Technical knowhow

Place and positioning of dealer in target market segment play a very significant role in ascertaining the sales and reach of the product. As we did not have the STP details of individual brand so, we taken that factor in a standardize framework to carry out our market analysis.

Figure 10: Dealers influence on customer purchase The above facts are well supported by the dealer’s survey results where we found that being customer friendly helps the dealers a lot in attracting the new customers and retaining the old customers. Also surprisingly only 30% of the customers opt for the financing options which shows that availability of easy loans doesn’t attract more sales. Also the hygiene factors like bike registration, free servicing holds a lot of importance as it saves the consumer from lot of painful registration activities.

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Also the fact that financing is no more a very influencing decision factor for the consumers is also proved by the research report done by ICRA.(Please refer the above graph). The reducing importance of finance availability is also due to the increasing number of rural consumers which don’t rely much on the organized financing sector.

Promotion: Impact of advertisements

TV ads for motorcycles are relatively scarce, especially when it comes to mainstream programs, simply because motorcyclists make up such a small percentage of TV viewers. Still, there have been some great ad campaigns mounted by the motorcycle manufacturers over the years, even if most of them never got the kind of exposure we think they deserved. As the motorcycle market in India has matured, the quality of advertisements for motorcycles has definitely improved. While historically BAJAJ has had an excellent list of ads right from their "HAMARA BAJAJ” campaign, many other manufacturers have also tried to improve their advertisements beyond the "mileage" and "price" factors while starting poll might be cumbersome in terms of listing down all the ads. If we think on some of these ads that caught the public's imagination, if not help the company improve its sales. But if we consider the impact of the sales on low price bikes, the conclusion that advertisements impact sales is still debatable. Our results indicate a very low effect of advertisements on the consumer’s final purchase decision as shown below in the graph. This data was collected from the consumer and most of them responded that they acted independently.

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Figure 11: Effect of Advertisements and promotions

But as shown in exhibit 1, only TVS has reported a decrease in its advertisement expenditure, while Bajaj Auto Ltd has actually increased its advertisement expenditure with a clearly discernible spike in sales. Details are in Exhibit 1 with values taken from Company Annual Reports. if we consider the impact on the high income segment, a clear image on brand loyalty emerges. As is mentioned in our study, brand name and comfort have a very high weight-age on the overall purchase decision of the consumer and it also has an impact on his repurchase decision. Dealer study revealed a very high weight-age on the colours and style combinations among bikes and this is where the bike advertisements make a huge impact. Any advertisement giving a huge emphasis on brand building has been amazingly successful in the segment. If we consider Bajaj Pulsar, which is the one of the current market leaders in the segment, its advertisements have definitely made a huge impact in disproving the fact that only Japanese bikes deliver on power and style. They showed that Indian bikes can also deliver. Any advertisement directed at the youth with credible performance has led to a spike in sales. If we consider recent results, the second biggest two-wheeler manufacturer, Bajaj Auto registered a 16% increase in sales during the month of August with overall sales of 3.82 lakh units as against 3.29 lakh units during the corresponding period of 2010, as reported in newstonight.in. The motorcycle sales of the company remained up by 17% to 3.38 lakh units as against 2.89 lakh units during August last year. Commercial vehicle sales have jumped 11% to 44,685 units as compared to 40,188 units same time last month. These are clear indications of the incredible success of their advertisement campaigns.

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Customer Evaluation and Response Repurchase Decision

Replacement demand to be a key contributor to 2Wheeler industry volumes

According to estimates, around 50% of the total domestic sales of 2W are now made to first-time buyers5, 30% to customers looking to upgrade from their existing vehicle, and 20% to buyers seeking a second vehicle for the household. The break-up suggests that currently around 50% of the sales in the domestic 2W market are made to replacement buyers. Industry estimates also suggest that the 2W ownership cycle has now shrunk to less than five years. Considering that the industry has sold around 79 million 2W in the domestic market since the turn of the century, the total replacement demand works out to a fairly large number (refer Table). Add to this the healthy growth in sales to first-time buyers in recent years, driven in particular by sales to the rural market, the replacement opportunity could only increase in the future.

From the consumer perspective, although replacement involves fresh capital spending, the inducement of upgrading to an improved technology 2W, having better performance, features and more attractive styling; complemented with increased spending propensity are expected to be the prime ingredients feeding replacement demand.

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Conclusion: After analysis our findings substantiate the fact about consumers that in high involvement purchases, advice from friends and family is paramount and price sensitivity declines with income increase and brand choice gets more important. The motorcycle market, similar to cars is broadly comprised of two segments, one price and mileage sensitive and another design and comfort oriented. The average consumer in both the segments shows markedly different behavior in relation to advertisements with the style sensitive consumer being more influenced by advertisements than the price-sensitive segment. Overall, it was found that maintenance and service provided by dealers were given secondary weightage as far as purchase decision is concerned indicating a move to repurchasing than repairing motorcycles – a sign of a more consumerist culture.

Additional Considerations: Companies take regular feedback from the dealers, before launching any new bike. Dealers give data to the companies on consumer preferences and once a new bike is launched, feedback is taken after 2-3 months and based on the feedback companies modify and relaunch the products if needed.

Exhibit 1

Advertisement Spends of the Two Companies Advertisement Cost as a percentage of Net Sales 18 | P a g e

Bajaj Auto Ltd Rs in Million 2010

2009

2008

Advertisement Cost

1,402.00

852.00

1271.5

Net Sales

121180

90500

90,000

% of Net Sales

1.156956593 0.946666667 1.412778

TVS Auto Ltd Rs in Crores 2011

2010

2009

Avertisement Cost

185

157

91

Net Sales

6433

4543

3741

% of Net Sales

2.875796673 3.455866168

2.432505

Note – Values in the given exhibit are taken directly from Companies’ Annual Reports

Exhibit 2

Note: Prices data taken from ICRA site. 19 | P a g e

Sources: 1) Questionnaire Administered to Customers via face to face (given larger weightage) and surveymonkey 2) Questions and Opinion Sought from Dealers 3) Philip Kotler: Marketing 4) Two Wheeler Industry- An ICRA Perspective 5) Census 2001, Statistical Outline of India 2009-10

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