AMITY BUSINESS SCHOOL

MARKETING MANAGEMENT

Royal Enfield: Revival of a Cult Brand

Name: Ankit Kumar Rai

Session: 2015-17
Program: Marketing & Sales
Roll No.:- 17
Section: - B
 INTRODUCTION TO AUTOMOTIVE
INDUSTRY IN INDIA
The automotive industry in India is one of the largest automotive markets
in the world. It was previously one of the fastest growing markets globally,
but it is currently experiencing flat or negative growth rates. In 2009, India
emerged as Asia's fourth largest exporter of passenger cars, behind Japan,
South Korea, and Thailand, overtaking Thailand to become third in 2010. As
of 2010, India was home to 40 million passenger vehicles. More than 3.7
million automotive vehicles were produced in India in 2010 (an increase of
33.9%), making India the second fastest growing automobile market in the
world (after China). India's passenger car and commercial vehicle
manufacturing industry recently overtook Brazil to become the sixth largest
in the world, with an annual production of more than 3.9 million units in
2011. From 2011 to 2012, the industry grew 16-18%, selling around three
million units. According to the Society of Indian Automobile Manufacturers,
annual vehicle sales are projected to increase to 4 million by 2015, not 5
million as previously projected.
In 2011, there were 3,695 factories producing automotive parts in all of India.
The average firm made US$6 million in annual revenue with profits close to
US$400 thousand.

Features of the automobile industry

The structure of the auto market has been changing at a faster pace along
with the global changes in the Industry. There are several global automobile
companies who were averse to come and invest in India ten years ago, now
have kept India as a priority destination for their investment. Along with the
entry of multinational auto companies, the profile of domestic auto
companies too witnessed a structural change.
The stiff competition to access market prompted companies to go for
different models with differing qualities and efficiency. The market too
expanded at a rapid pace with the entry of soft financial assistance from
several financial institutions to middle income households.
MNCs need to carefully plan their entry into emerging markets. Early
commitment to a market often results in first mover advantages that are
difficult to replicate. On the other hand, later entrants have the opportunity
to learn from the mistakes of the first entrant.
The Indian car market offers useful lessons in this context. In the 1990s, the
Indian Government removed several restrictions in a bid to attract foreign
investors into the automobile industry. Among the first to enter was Daewoo
of South Korea, with its model Cielo, targeted at the upper end of the market.
Other MNCs such as Ford and General Motors also entered the Indian market,
followed by Hyundai, Honda, Toyota, Volkswagen etc.
Most MNCs began their operations in India as joint ventures with local
partners. Examples include Suzuki, G.M, Ford and Daewoo. With the
exception of Suzuki, these joint ventures have become fully owned
subsidiaries of the foreign partners. In all these cases, the local partners
have just not had enough resources to chip in whenever the equity base has
been expanded. Consequently, the foreign partners have pumped in the
additional capital and raised their equity stakes
With the liberalization of the India economy, the Rs 18,500 crore Indian car
market is being opened up to foreign investors. Several companies are
setting up or have already set up operations in India to cater to the Indian
market. There are several strategies by which a foreign enterprise can set -
up Indian operations.
This module aims to give the various entry options available to a foreign
investor, especially for foreign direct investment. This module does not deal
with portfolio investments.
Broadly, entry strategies may be classified into two major types :-
1. A foreign investor may directly set up its operations in India through a
branch office or a representative office or liaison office or project office of the
foreign Company ; or
2. It may do so through an Indian arm i.e. through a subsidiary company set -
up in India under Indian laws.
Generally, setting up operations through an Indian arm is advisable,
especially if the quantum of investment is huge.
The impact of Indias initiatives in economic liberalization and globalization
(post 1991) is most apparent in the automotive sector. Automotive industry
is a key driver of economic growth contributing around four to five percent to
the Indian GDP. Introduction of reforms and entry of international companies
has intensified competition in the Indian automotive sector.
This has resulted in the transformation of a sellers market (created mainly
due to the Indian governments protectionist policies) into a buyers market.
The changing structure of this industry has posed many challenges and
opportunities to the market participants.
Previously, Indian automotive market was characterized by weak air pollution
regulations. In addition, low labor cost of maintenance and the psyche of
Indian consumer to delay the discarding of the old vehicle reduced the scrap
rate. All these factors resulted in prolonged operational existence of vehicle
on Indian roads.
The benefit of this practice is the comparatively higher revenues for
automotive component suppliers, due to increased demand in the
aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles
in the National Capital Region (NCR) is likely to force the old polluting
vehicles off road. This will reduce the average life span of vehicles on road
and the overall impact would be reduced per vehicle parts consumption.
Two wheelers generate the highest volumes and are more popular in rural
and semi urban markets primarily due to lower income levels and poor road
conditions. Therefore, these could be classified as entry-level vehicles. Within
two wheeler segments, progressively mopeds are likely to be replaced by
motorcycles. With the growth in the family income of these rural and semi-
urban buyers and the option of numerous used cars, it is expected that a
significant shift would take place from two wheelers (mainly scooters) to four
wheelers.
Lucrative finance schemes have made the purchase of mid-sized cars really
affordable. The present owners of the small car are likely to graduate to mid-
size cars mainly due to declining importance of small car as status symbol
and the marginal increment in repayment installment in the finance options.
Good performance of the economy has led to higher all round growth leading
to high GDP growth of 8%. Excise duty reduction on passenger vehicles
helped to reduce the ultimate price to the customer. Brisk activities on
infrastructural development will give a boost to the automobile industry.
Softening of interest rates and improved financing of second hand vehicles
have made the purchasing of cars financially viable.
Availability of finance in rural and semi-urban areas have led the low-end
customers to put money in the purchase of vehicles. Emergence of India as a
manufacturing hub for the automobile industry is a good sign for the
countrys future prospects.
The automotive industry performance is closely linked to industrial growth. It
is hoped that industrial growth would be around 7 per cent during the year
2003-04 as against around 6.5% last year. Agriculture output during the year
2003-04 increased by over 10% as compared to (-)3.2% in the previous year.
Today we are fourth largest economy (USD 2.5 trillion) in the world after USA,
Japan and China in terms of purchasing power parity. The outlook for the year
2004-05 is promising and it is expected that the current growth rates of GDP
and industrial output will be sustainable, which would ensure robust growth
in the automotive sector.

Case Study

INTRODUCTION :-

Royal Enfield, the motorcycle section of the India-based

automobile manufacturer Eicher Motors, recorded sales of
302,582 (in the year 2014) units. The sales for the year in 2014
were quite higher than even the world wide sales of Harley
Davidson for the first time in the two wheeler automobile brands
history. The spectacular figures were the result of the turnaround
strategy applied by the companys management after its sales hit
a low of 12,000 units half yearly in the year 2000.

During the early 2000, Royal Enfield was suffering from a

number of problems like poor quality of its products, change in
tastes and preferences of customers, outdated design and the
entry of Japanese two wheeler auto manufacturers in Indian
market. Despite having a cult following among its fans, many
potential customers saw Royal Enfield Name as a relic of the past.
 In order to turn around the fortunes of Royal Enfield, the
management began to taking a number of marketing initiatives in
the early 2000. Despite facing strong opposition from the brands
fans, a number of frequent design changes were made to the
vehicles. A new lightweight aluminum engine was developed to
replace the old cast iron one. Further changes like using a single
platform for all its vehicles & the introduction of new models like
the Royal Enfield Thunderbird saved costs and boosted sales in
market. In order to enhance brand experience for its potential
customers, Royal Enfield improved the quality of its dealer outlets
and started company owned its flagship outlets called Royal
Enfield Concept Stores.

ABSTRACT :-
The case is about the revival of the iconic Royal Enfield motorcycle brand.
Since the brand was introduced in the Indian market during the mid-
nineteenth century, it was highly preferred by rural customers and the
government departments like the police and the armed forces. During the
late nineties, sales of the brand declined due to a number of factors like poor
quality, lack of a proper sales and service network, and weakening of the
brand image.
The companys top management decided to sell or close its two wheeler
segment as it was becoming a drag on the company's performance.
However, Siddhartha Lal (Siddhartha), a young member of the Lal family
which controlled the Eicher Group, opined that the fortunes of the brand
could be reversed. The companys board agreed to the proposal of
Siddhartha and made him the CEO of the two wheeler segment.
Siddhartha took a number of initiatives to revive the fortunes of the brand. A
new light weight engine made of Aluminum was developed to replace the
Royal Enfield motorcycles' old cast iron engines. New engines had higher fuel
efficiency and longer life than the older engines. Royal Enfield took the help
of an Austrian design firm called AVL to design the new engines. Changes
were also made to make the motorcycles look contemporary. In order to
improve the quality of motorcycles, the management made the quality
standards for its component suppliers stringent. A new cruiser model called
Thunderbird was introduced in the year 2002 to attract new younger
customers. Enhanced quality and new models improved the sales by the
year 2005. Within a short period of initiating quality enhancement measures,
the warranty claims went down.
Issues

The case is structured to achieve the following objectives:-

To understand the importance of product quality in the success of a

brand
Analyse the strategies followed by the management of Royal Enfield to
revive the fortunes of the brand
To understand the role of different marketing mix elements in building
brand equity
Appreciate the importance of creating better brand experiences to
connect with customers
To understand the threats faced by a business due to the entry of new
players into the market.
Suggest the future strategies that should be followed by the
management of Royal Enfield.

BACKGROUND NOTE :-
The origins of Eicher Motors dated back to 1948 when
Goodearth Company was set up to import tractors from other
foreign markets and sell them in India. Between the years 1952
and 1957, Goodearth Company imported and sold 1,500 tractors
in India. In the year 1958, it entered into a joint venture with
Eicher Tractor Company of Germany to manufacture tractors in
the Indian market.
The joint venture was named Eicher Tractor Corporation of
India Private Limited (ETCI). ETCI built its first factory at Faridabad
and sold its first tractor in the Indian market in the year 1959. The
name was changed to Eicher Tractors India Limited when it was
converted into a public limited companywhen its Indian
shareholders bought out the German stake in the company in the
year 1965. By the year 1975, 100 percent indigenization had
been achieved in the manufacturing of Eicher Tractors.
 In the year 1980, Goodearth Company was renamed Eicher
Goodearth Limited to leverage on the Eicher brand image in the
country. In the year 1982, the company entered into an
agreement with the Mitsubishi Group of Japan to manufacture
Light Commercial Vehicles in India. A new company called Eicher
Motors Limited was incorporated the same year for the
manufacture of commercial vehicles other than tractors. In the
year 1990, the Eicher Group entered the two wheeler business
when it bought a 26 percent stake in Enfield India Limited. By the
year 1993, the Eicher Group had acquired 60 percent of
shareholding in Enfield India Limited and had become its
controlling stakeholder.

ROYAL ENFIELD
In the year 1893, Enfield Manufacturing Company Ltd (Enfield
Manufacturing) was set up in England to manufacture bicycles.
The company manufactured its products under the Royal Enfield
brand. Not content with limiting its product line to bicycles,
Enfield Manufacturing soon decided to focus on building other
types of vehicles.In the year 1899, it started manufacturing a
quadricycle called the Royal Enfield Quadricycle. The Royal Enfield
Quadricycle was powered by a rear-mounted engine. Despite
being an innovative concept at that time, the Quadricycle had
limited market potential. In the year 1901, Enfield Manufacturing
launched its first motorcycle. This was fitted with a 239 cc engine.
ROYAL ENFIELD INDIA
As part of its global expansion strategy, Enfield started
selling its motorcycles in the Indian market in the year 1949. In
1955, the Indian government placed an order for eight hundred
350 cc Royal Enfield motorcycles for use by its police and armed
forces. The Royal Enfield motorcycles were considered an ideal
choice for the Indian army for patrolling the countrys border.

A CULT BRAND IN TROUBLE

Despite operating in a limited segment, Royal Enfield
remained one of the most appreciated two wheeler brands in
India. The bikes were preferred by both motorcycle enthusiasts
and potential customers in the rural & urban areas.

REVIVING THE BRAND

Immediately after taking over as CEO, Siddhartha analyzed the
strengths and weaknesses of Royal Enfield to come up with a
strategy to put the brand on its path to revival. He came to the
conclusion that the sales of Royal Enfield motorcycles needed to
be improved quickly to save the brand.

FOCUS ON OTHER BRAND ELEMENTS

With the quality issues addressed, the management focused
on improving the customers experience of buying and owning the
brand. To improve the sales experience, Royal Enfield improved
the look of the dealer outlets.

AIMING HIGHER GROWTH

 Even though the prices of Royal Enfield were higher than that
of the low powered Japanese motorcycle brands sold in India, they
were cheaper than the major global brands. And in order to keep
the motorcycles affordable in the price conscious Indian market,
the company did not revise its prices even after the prospects of
the brand started to improve.

LOOKING AHEAD
The strong pricing power of the Royal Enfield brand and the
improved operating margins rapidly increased the valuation of the
company. By the year 2015, Eicher Motors had become one of the
most expensive automobile stocks in India.