Rajiv Bajaj On Overtaking Hero MotoCorp
Were he not the son of the promoter, would Rajiv Bajaj have had the courage to junk the company’s mainstay scooter business and shift gears to motorcycles?
We’ll never know. Because he is and he did. Except it was not courage, he says, but the paranoia that drove the decision. And risk-aversion.
“It was very clear to me that in an industry where technology had by and large saturated, you had to compete on something else,” Bajaj, managing director Bajaj Auto Ltd., said in an interview on BQ’s Leadership show. The motorcycle industry world over was then twice the size of scooters, Bajaj recalled. He decided to “invest every man, every minute and every rupee” in becoming a global motorcycle company. It won him few fans in the beginning.
“Because the problem you see with marketing/strategy is that it is extremely contra intuitive. It relies on differentiation and differentiation by definition means you’re doing something that nobody else is doing. Whereas most people think intuitively and nothing is more intuitive than herd mentality.”
Over time, the Pune-based company built a modular manufacturing process that could cater to several products at different price points for different markets (over 70 now) even as it carefully picked the product positioning for each of them. Bajaj said they all had one thing in common — pricing power.
Companies fritter away cost advantages by diversifying into unrelated or poorly positioned products, he contended.
“Often people have said, we as a company are obsessed with 20% Ebitda, we are not. In an open market, your Ebitda is controlled by your competition not by you. What we are obsessed with is pricing power. Now, once we price on par with competition, ultimately our bottom line will be dependent on how efficient we are within. If that happens to be 20%, that’s fine. My belief is that most manufacturers are a 20% Ebitda company but the reason the industry typically averages at 8-12% is because they do lots of stuff that they should not be doing where they don’t have pricing power, where they have to either directly or indirectly discount and that is what then hits their bottom line.”
15 years after Bajaj Auto exited the scooter business it is the world’s most valuable two-wheeler company. Does that suggest Rajiv’s strategy has been an unqualified success?
Yes and no.
The decisions, to focus on just motorcycles and go global, have yielded rich results and given Bajaj Auto a hedge to its domestic market exposure that contributes just over half of revenue.
But it is still number two in the Indian market, behind Hero MotoCorp Ltd. in motorcycles. And number four in the two-wheeler market, which includes scooter manufacturers as well.
“There is not a not a single day that passes without us asking ourselves, how can we do better in this market,” Bajaj said while explaining why reaching number one could take a while, if ever.
The problem...is that when you want to create differentiation in a Rs 5-lakh motorcycle it’s relatively easier as it is in a Rs 50-lakh car. But if you want to create differentiation in a Rs 2-lakh car, or a Rs 3-lakh car to take on Maruti, you will struggle because the consumer is not willing to pay you more than a few rupees more. And how do you make something remarkably different happen for a few rupees more? This is the challenge.Rajiv Bajaj, MD, Bajaj Auto
Intra-segment wins are unlikely, but inter-segment strategies, that convince consumers to move from the mass-selling categories, in which Hero has tremendous lead, to a premium category, may work.
“But that process takes time. There was a time when 100-cc motorcycles were 90% of the market, let’s say about 20 years back. Today it is down to 50% of the market. So, it’s not that that shift is not taking place, but one has to be patient with that.”
This long road to pole position in the domestic market is not a failure but “an opportunity for improvement,” Bajaj countered. The only failure, according to him, in a business context, is when a company deviates from principle.
“One, do not defuse your brand, and two, do not fail to defend your brand once you build a leadership brand, by which I mean a number one or a number two brand. As long as one is not guilty of these two, I think of everything else as an opportunity for improvement.”
At 54, Bajaj is preparing for the biggest transformation his company and industry will witness in his lifetime. Electrification.
Interestingly, that has prompted the company’s return to scooters, in an electric avtaar. It has revived an old best-seller, the Chetak. And though initial sales have been meagre, Bajaj insisted a slow start is how he planned it. That’s how Bajaj 2.0, the motorcycle maker, was shaped as well, he narrated at the start of the interview. “One of the principles of Homeopathy is that, each door shows the way to the next door. You wait and watch, you observe and you don't think too much. So, I was merely observing as the market shifted, as competition evolved, as Bajaj had to adapt.”
But that was almost two decades ago.