Mahindra & Mahindra wants to do a Scorpio in scooters. Will it succeed?.
India is the second-largest market for two-wheelers in the world, next only to China. In 2008-09, Indians bought over 7.4 million two-wheelers – motorcycles, scooters, mopeds, step-thrus and electric two-wheelers. This year, the market has so far grown at over 17 per cent. If the trend holds for the rest of the year, 2009-10 could end with two-wheeler sales in excess of 8 million.
The opportunity was simply too good for Mahindra & Mahindra to resist for long. In the last few years, it has evolved from tractors to commercial vehicles and passenger cars. Two-wheelers were the only gap in its portfolio. If plugged, the company could straddle the entire spectrum of automobiles. There were advantages and disadvantages. First the negatives: The market for two-wheelers is as different from utility vehicles as cheese from chalk. And motorcycles comprise over 80 per cent of the market. The competition is cutthroat. It is not easy to gain an inch from street fighters such as Hero Honda, Bajaj Auto and TVS.
On the positive side, Mahindra & Mahindra is a trusted name. It has strong brand equity in rural markets which contribute 40 per cent to two-wheeler sales in the country. It has a wide distribution network in place. Most important, it has done a successful transition from tractors and commercial vehicles to cars, though these markets have nothing in common. The Scorpio is the largest-selling sports utility vehicle in the country. So, its ability to sell two-wheelers cannot be doubted.
Still, Mahindra & Mahindra did not want to leave anything to chance. It touched base with 7,500 respondents across the country last year to check if the foray into two-wheelers made sense. Most of them said that a Mahindra two-wheeler doesn’t sound outrageous. That gave the company the confidence to roll out its two-wheeler plans. First off the block is its range of gearless scooters. (Motorcycles will have to wait till next year perhaps because the company does not want to rush to the market with a me-too product.)
But the scooter market is no less competitive. At one stage, it was on oxygen. Stylish and fuel efficient motorcycles had more or less killed the market for scooters. So much so, market leader Bajaj Auto decided to vacate the space. But the market has bounced back in the last few years because of two reasons: One, scooters now offer mileage that is not very different from motorcycles; and two, scooters require lesser maintenance than motorcycles because they are used in large numbers by women who are cautious drivers. Honda leads the pack with a market share of 53 per cent, followed by TVS (21 per cent), Hero Honda (14 per cent) and Suzuki (8 per cent). Mahindra & Mahindra’s share is a tad above 2 per cent. (See chart)
The incumbents have worked hard to cement their positions. Honda can boast of superior mileage and style. Hero Honda has positioned itself as the scooter for women with a campaign that featured Priyanka Chopra. TVS has gone for a similar position with Sania Mirza as its brand ambassador. Suzuki has projected itself as a product for the whole family. There aren’t too many models in the market place, yet differentiation is a must for survival.
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Power play
Mahindra & Mahindra has positioned its scooters, a portfolio of three (Duro, Rodeo and Flyte), as power scooters. “With their international appeal and powerful performance, our world-class scooters will extend the Mahindra & Mahindra DNA of ‘tough & rugged’ style to a whole new consumer segment,” says Mahindra & Mahindra Vice-chairman and Managing Director Anand Mahindra.
Mahindra & Mahindra Vice-president (marketing) Devendra Shinde says the company wants to build on the image of its sports utility vehicles (the Scorpio and Xylo) – machismo that its competitors cannot claim. “Not only is it our lineage, but no other scooter in the market is positioned as delivering power. They are mostly for the family or women,” says he.
So, each of the three scooters has been equipped with an 8-hp 125-cc engine, packing more power (better displacement) than the 100 cc scooters of rivals. The Suzuki Access is the only other scooter in the market that rides on a 125 cc engine.
What also helped was the acquisition of the assets of the Firodia-promoted Kinetic Motors in 2008 for Rs 110 crore. Kinetic had launched Flyte, complete with a 125 cc engine, in 2007. The acquisition thus gave Mahindra & Mahindra a ready power scooter to launch. This is what the company has done now, of course, after touching up the scooter a bit to give it a new look and feel.
Rivals aren’t sure the game-plan will work. The scooter market, they say, is clearly a family- and women-oriented market. “Scooters are purely utility products, they are not lifestyle accessories. No one wants to show off one’s scooter. Look at what happened to the (Kinetic) Blaze which had a 165 cc engine and was positioned along similar lines. (It was withdrawn.) It is unlikely that the market will shift beyond utility,” says Suzuki Vice-president (sales and marketing) Atul Gupta.
While the Duro and Rodeo are still testing the waters, the Flyte has been selling 4,000 per month in the last six months. “This is double the monthly sales of the Kinetic Flyte at its peak,” says Shinde. For the record, Mahindra & Mahindra got four scooters in the Kinetic acquisition: The Flyte, Nova, Kine and 4S. Of these, it found the Flyte the fittest in technology, design and consumer feedback. “The Nova, Kine and 4S will continue to be sold as long as there is demand. We won’t spike their demand through any effort,” says Shinde.
Though Kinetic was a well-known brand in the market for gearless scooters, there is only this much that its new owner could do with it. Kinetic could not match the investments made by rivals like Hero Honda, Bajaj Auto and TVS in product development, promotion and distribution. (It also played around with motorcycles for a while but with limited success.) It had a flourishing automobile components business which bagged much of the management’s attention. When Honda exited the company in 1998, it was a big blow to Kinetic. Though it tried a few things, sales began to slow down, the line-up remained lackluster, distribution and after-sale service began to gather dust. That was when Mahindra and Mahindra took it over – the acquisition of the factory cut sharply the go-to-market time.
Kinetic did have one advantage. SYM, the $1-billion Taiwanese automobile maker, was Kinetic’s partner in India and had helped it launch the Flyte. Mahindra & Mahindra could count on its technical expertise. In fact, the Taiwanese company gave valuable inputs in the development of the Duro and Rodeo too. Kinetic also had an 80:20 partnership with Italjet Moto SpA of Italy. It was through this joint venture that the Blaze was launched and subsequently discontinued. But Mahindra & Mahindra does not see much value in it. “Italjet does not have much technology to offer. The collaboration with SYM is far superior, the engines are peppier. The resources needed to contemporise Italjet's products (the company does not exist any more) could be too large,” says Shinde.
Mahindra & Mahindra can also draw on the expertise of Engines Engineering, the Italian automobile design and technology outfit that has worked on brands such as Ducati and Honda, which it bought in 2008.
Smart prices
The three scooters are priced between Rs 38,300 and Rs 41,300 (ex-showroom, Mumbai). Though priced in the same range as the Hero Honda Pleasure and TVS Scooty Pep, these are 5 to 6 per cent cheaper than market leader Honda Activa, despite an engine that is 12 to 18 per cent larger. These are also 8 to 12 per cent cheaper than Suzuki Access. The pricing strategy seems to be similar to the one Mahindra & Mahindra used when it launched the Scorpio – low inaugural prices which can be ramped up once the brand is well established in the market place. On its part, the company does not confirm the rise prices might see in the time to come. Mahindra & Mahindra President (two-wheeler sector) Anoop Mathur says: “The pricing is strategic for us. Of course, it is sustainable.”
Mahindra & Mahindra wants to sell no less than 100,000 scooters in a year and a half. To create the demand for its scooters, it has come out with a teaser ad that highlights the power. “There was some product truth in it and we also found that consumers, both women and men, want power in a scooter for various reasons such as carrying load,” says Interface Communications COO Joe Thaliath, the creative agency. Brand-specific advertisements will follow soon. The company has also tried to reach out through a refurbished website and is present in the social media. Before the launch, there were teasers on YouTube. On the eve of the launch, around 300 links were posted on the web to create buzz. Floats and displays around malls and stores such as Big Bazaar and Spencer's reported conversions of 5 to 20 per cent.
Of the 300 dealers in place for the scooters, 60 per cent are old Kinetic dealers. “There were some Kinetic dealers who did not want to come on board. Then there were others who did not have the requisite infrastructure and working capital (they need Rs 6-10 lakh of working capital to begin with apart from rents, and at least 1,000 square feet of space),” says Shinde. There are about 120 new and existing four-wheeler dealers including those of tractors. Says Shinde: “It would open up the opportunities to up-sell and down-sell. A Logan customer, for example, could be engaged to buy a scooter for his college-going kid.” Adds Mathur: “Our strength is in working with existing dealers to find synergies in selling experience.”
There are some who believe that scooters will help Mahindra & Mahindra learn the tricks of the two-wheeler trade. “The motorcycle market will be Mahindra & Mahindra’s ultimate target. The scooter market will be its learning ground before it enters the main two-wheeler category of motorcycles,” says Ernst & Young National Leader (automotive sector) Rakesh Batra. At the moment, the company is dead serious.