Can TVS regain form?

Like Sachin, TVS could do with a few good wins

Will Sachin Tendulkar ever play again like he once did ? His recent form does not really inspire confidence. Much like the company whose products he endorses "" the Chennai-based TVS Motor Company.

Once a strong contender in the motorcycle industry, TVS today is struggling to get its product positioning and pricing right. From an 18-20 per cent share of the market two years ago, TVS is today down to 12-13 per cent. In the meantime, motorcycle sales grew 14 per cent and 19 per cent in FY04 and FY 05 respectively (Source: SIAM).

The spoils have been shared by Bajaj Auto, which has upped its share from 22-24 per cent to 30 per cent, and market leader Hero Honda, which has cornered an additional 6 per cent and today sells one out of every two motorcycles in India.

That's quite a comedown from the time TVS parted ways with Suzuki and went into motorcycle manufacture on its own. Its first independent bike, the Victor "" introduced in 2001 with in-house technology "" raced to success almost immediately.

Trouble is, since then the company hasn't launched any motorcycle with the same degree of success "" it hasn't been able to get the timing, positioning and pricing right for its other bikes. So, is TVS in danger of becoming a one-match wonder?

Play your strokes

TVS was a two-stroke motorcycle company during its tieup with Suzuki. As petrol costs mounted, though, customers began switching to four-stroke bikes, which are more fuel efficient. But even as other motorcycle manufacturers started cutting back production of two-strokes in favour of four-stroke machines, TVS continued with its entry-level two-stroke, the Max 100.

By the time the company got around to beginning the Max phase-out (in 2001-02), it had already committed another error "" there was no suitable replacement ready.

"We were a relatively late entrant in the four-stroke economy segment of the motorcycle market. Our slippage is a result of that," concedes Prasad Narasimhan, vice president, marketing, TVS.

The delay has cost the company. Volumes fell 4 per cent in FY05: from around an average 59,900 bikes every month in FY03, sales dropped to about 57,000 a month in FY05 and haven't increased since.

That's mainly because while the motorcycle industry has been racing ahead by 21 per cent over the past year, the economy segment (100 cc and below; under Rs 37,000), which accounts for close to half the market, has been speeding even more "" it grew over 40 per cent. And TVS had no offering in this segment.

At least, not until October 2004, when the company launched StaR, a new 100-cc, entry-level bike. By then, however, Bajaj Auto's CT100 (launched in May 2004) and Hero Honda's CD Dawn had already established their presence in the economy segment.

Of course, TVS is still hopeful that StaR will shine through "" it's logging sales of over 30,000 a month at present, and the company believes momentum is still building up. In fact, StaR will probably form the bulk of TVS's volumes this year.

That may not be all good news, point out competitors. If 60-70 per cent of the company's volumes are sold at a Rs 31,000 price point, TVS's margins may come under pressure.

Still Victor-ious

TVS may have missed out on the economy space, but there's no denying the success of its executive segment (100-125 cc; Rs 38-42,000) offering, the 110 cc Victor. After initial sales of 18-20,000 bikes a month, Victor hiked its run rate up to 35-40,000, by August 2002.

But Victor's victory also hides a lost opportunity "" TVS launched the first brand extension only in May 2004, almost three years after the original launch. By the time the Victor 125 GLX hit the roads, TVS had again yielded ground to rivals. Consultants agree with that reasoning.

Says Ramesh Srinivas, partner, IBM Consulting Services, "TVS, though technologically comparable with its peers, needs a more complete coverage of products across segments."

Not surprisingly, Narasimhan differs, "We don't believe we are slow to launch variants. In 2004-05, we had one new variant and one re-stage of the core brand, which is more than what others achieved."

While Bajaj and Hero Honda hadn't been setting the streets on fire with launches, they had been busy innovating. Apart from cornering economy segment volumes by pricing its CD Dawn at a low Rs 32,000 in early 2003, by October that year, Hero Honda had also consolidated its hold on the executive bikes market with Passion Plus and Splendor Plus.

And while Bajaj Auto's initial offerings in the executive segment "" Wind and Caliber, launched between July and October 2003 "" bombed, its September 2004 launch, Discover, is selling over 30,000 units a month. Meanwhile, CT100 and Pulsar (premium category) are zooming from the showrooms, too.

Centra off-centre

Meanwhile, in January 2004, TVS launched another 100 cc bike, the Centra "" and got the pricing horribly wrong. The Centra was marketed as a fuel efficient, "fill it once a month" kind of bike, and TVS was targeting selling 25,000 units a month.

Aimed initially at the executive segment, the Centra was billed as a reliable, rugged bike that gave great mileage. But at Rs 37,000, there have been far fewer takers than anticipated.

"Centra sales are below internal expectations," admits Narasimhan, adding "it should have been priced significantly lower."

It was "" but the damage was already done. In late 2004, Centra's prices were slashed to Rs 32,000 and it was repositioned as an economy segment offering.

Although TVS refused to share sales figures, market estimates place Centra current sales at under 10,000 a month, nowhere close to TVS's initial target.

Observes a competitor, "You cannot launch at Rs 37,000 when there are competing products at Rs 30-32,000. At best they could have scaled up volumes and then taken a chance with a higher price. TVS misread the market completely."

That's a charge seconded by industry watchers. TVS has not been able to position its vehicles properly and customers don't identify with the products, they point out.

"While the Hero Honda brand stands for mileage, Bajaj Auto is identified with performance. However, TVS's brand does not have a strong-enough personality," says an analyst.

He adds that the trouble lies in TVS's inability to read the customer's mind. For instance, while customers demand better mileage, ultimately, the bike's look swings the sale.

Sanjay Upendram, director, KPMG, points out that in the past, the company has captured customer imagination with the Victor. "TVS needs to focus on more such products with a clear value proposition," he adds.

The road ahead

Given TVS's technological strengths, that shouldn't be too tough. In 2002, the company was awarded the prestigious Deming award for total quality management. The award was significant on two counts: TVS was the first two wheeler company in the world to win the Deming; and the recognition came after Suzuki's exit. Industry analysts believe TVS is technologically as advanced as Bajaj, if not better.

"In Victor we have seen their engineering promise: they just have to take it to the next level. If the Tatas can do it, so can they. The don't necessarily need foreign technology," declares KPMG's Upendram.

Meanwhile, competition in the motorcycle is only becoming more intense. Even as

the incumbents add to their arsenal, newcomers Suzuki Motors and Honda Motors and Scooters India are gearing up for festive season launches.

For its part, TVS is readying itself for battle, too. It has three variants lined up for the coming buying season and is also likely to launch two new 150-cc bikes this fiscal.

"We hope to end the year with a 16 per cent market share, with some creative marketing and sales," declares Narasimhan.

Both IBM's Srinivas and KPMG's Upendram believe that TVS will be able to fight back, though they admit it won't be easy. Says Srinivas, "It's an uphill task, but don't write them off." Like Tendulkar, TVS needs to return to form "" soon.