Introduction

Bajaj Auto Limited is an automobile manufacturing company which came to existence in 1960
when Bachraj Trading Corporation decided to enter into the two-wheeler automobile business.
Their inception was based on the fact that Bachraj Trading Corporation was into the business of
trading in auto parts since 1945 and had mustered enough experience to start their own
manufacturing. At the time of inception, India was a country comprises masses having low levels
of income therefore only two-wheeler (scooters) was affordable for most of the people.
Bajaj Auto Limited started off well, entering into a technical collaboration with Piaggio &
Company to assist them in the manufacturing process and later the company entered into a joint
venture with Maharashtra Government to increase the production capacity of scooters.
In early 1970s Bajaj Auto Limited hit the top of their learning curve which enabled them to start
manufacturing on their own and put an end to collaborations. This was the time when Bajaj
relied on in-house R&D to develop new models including the three-wheelers. However the
liberalization in 1980s led to the removal of barriers to entry in auto industry and to counter the
growing competition Bajaj entered into collaboration with Kawasaki Heavy Industries to
manufacture superior, high class models.
Problem Situation: The market share of Bajaj Auto has been on the decline since the
1990s in the two-wheeler market segment!
Issues at the surface
The composition of two-wheeler market has been continuously changing with increasing
shares of motorcycles and a decreasing trend in the scooter and mopeds segment.
Although the share of Bajaj Auto in the Scooters and Motorcycles segment has been
fairly stable, their total market share in the two-wheeler segment has been on the decline.
It was 50% in 1991 and dropped to 36% in just one decade.
The financial performance has been deteriorating in an attempt to counter the increasing
competition. The operating profit margin fell from 25% to 20%. Similarly the sales
revenue is also not up to the mark; it fell from 3157 in 1997 to 2962 in 1999.
The share price of Bajaj Auto Limited has fallen at an alarming rate. The price hit four
digit figures in 1996 but then it continuously fell, hovering around in the bracket of 450-
650.
The financials of the company report a high book value however the company is unable
to capitalize on the cash reserves by making the companys equity profitable.
Bajaj has one of the oldest plants which require continuous upgradation to keep up with
the technology.
Manufacturing plants are not strategically located resulting in high transportation costs
for some geographical areas and hindering Bajaj from penetrating the market properly.
The pricing strategy of Bajaj Autos is not good. Their products are priced lower than the
competitors products which may be a signal of lower quality.
Core Problem: Bajaj Auto is suffering from the Marketing Myopia whereby
they are led to believe that their success in the past is likely to extrapolate well into
the future. For this reason they have not paid adequate attention to the dynamic
environment and changing consumer needs.
Recommendations
Bajaj Auto Limited is among the first few companies to operate in the manufacturing of two-
wheelers in India. They have a name; they have a brand equity which they must secure. With
liberalization, so many companies have entered this business and Bajaj should kill these small
entrants by launching a Frontal Attack through introduction of new and innovative two
wheelers and three wheelers at prices so competitive than it would be impossible for the small
players to survive in the short run. They can do it because they have the resources, they can
achieve economies of scale with large scale production and they have huge availability of cash
reserves at their disposal which are lying idle and not benefitting the company in any way. Bajaj
must quickly acknowledge that the dynamics of the markets and the wants of customers have
changed so they must adapt to it and not just defend their market share but also increase it by
playing on large volumes instead of large gross margins.