Automaker eyes underserved rural markets

Monday, December 5, 2005

MUMBAI: Ever since management guru C.K. Prahalad spoke about money to be made by tapping the market at the bottom of the pyramid, more and more corporates are succumbing to the collective purchasing power of the not-so-well heeled. And a significant portion of their strategy is directed towards the rural masses. If it was the e-chaupal for ITC and Project Shakti from Hindustan Lever, soon it will be the turn of two- and three-wheeler major Bajaj Auto to step on the gas in rural Bharat.

And why not. With vehicle – two- and four-wheeler – penetration at 40-45% of households in most metros, mini metros, and emerging metros, the next wave of growth has to come from rural India, where it is currently as low as 7%.

?A rural customer has no choice. He buys whatever is available to him in the first place. So whoever reaches him first will have a natural monopoly. Our aim is to reach each village with a population of over 5,000,? says S. Sridhar, Bajaj?s vice president, marketing & sales (two-wheelers).

As a strategy, the company is segregating rural market from urban.

In the first phase, it will be setting up 20 outlets in affluent, but severely underpenetrated, rural districts, by March, 2007. Special schemes and financial products suited for the rural market will be launched. Bajaj?s non-banking financial arm, Bajaj Auto Financial Ltd (BAFL), is expected to play a key role here.

The strategy of having exclusive rural dealers has met with reasonable of success. In Nashik, for example, the company earlier had two outlets, both in the city, and barely a kilometre away from each other. It closed down one, and opened another one 35 km away from the city. Result: Both outlets are catering to exclusive catchments area and are closer to their customers. A rural customer no longer needs to travel to the city to buy or service his two-wheeler.

And Bajaj is taking the classical marketing route to enter the rural mindspace. ?We will train the sons and daughter of village VIPs, who are also the opinion makers and thought leaders of their respective villages,to do this? Sridhar says. The company expects its rural outlets to achieve a breakeven at 175-200 vehicles a month. It estimates the cost of setting up rural outlets at Rs 40 lakh, with working capital requirements of Rs 2 crore. Catering to a large number of ?unbankable? customers in rural India is a challenge.

And particularly for a product like two-wheeler, which is increasingly bought on finance. Sridhar is keeping his ?chequeless transaction? ace up close to his chest. All he is willing is disclose is that Bajaj Auto Finance will be playing a significant role, and will try to involve the rural self-help groups. ?How do you expect a man, who has no bank account, to provide 12 post-dated cheques? The problem with agencies providing micro finance to self-help groups is that there is no control on the end-use of the money. We, along with BAFL, are working on having control on the end use,? says Sridhar. This way, the company hopes that the customer would buy a two-wheeler with a two-wheeler loan, and not, say, use it on his daughter?s marriage.

But that doesn?t mean that the company is abandoning its urban focus. It is setting up 10 high-end motorbike showrooms – Probiking Centres – over the next 6-8 months. ?A dealer is not willing to invest so much, up to Rs 4 crore, on a Probiking Centre. In the first phase, all the 10 such centres will be company owned. The next 40 could have dealer participation,? Sridhar says.

Currently only two models, the Pulsar and the Avenger, and their variants are sold from Probiking Centres. But the company is expected to announce the launch of at least one premium (150 cc plus) motorcycle during the 2006 Auto Expo in January in New Delhi. Also on the anvil are some ungeared scooter models, which is the only growing segment in the scooter market.

Source: DNA India (link opens in a new window)