Auto Retail Transformation

Edited Text of the Keynote Address delivered by Madhur Bajaj, President SIAM & VC, Bajaj Auto at the inaugural Session of 4th Auto Summit on 14th Jan’06.

When we talk about auto retailing in India, I think it would be relevant to go back a little in time to scan the great contrast presented by the not-so-distant past and compare it with the present and the future scenario. Not too long ago, it was a shortage economy, where market promotions and advertisements were non-existent. In the lexicon of that time, the auto companies were what we call the distribution and allocation department. In an era of controls, shortages gave birth to premiums. There were many controls: there was production control, there was distribution control, and there were even price controls, which were ruling the roost.

In today's time, people will shudder to believe that Bajaj Auto was not allowed to expand in spite of a 10-year waiting list. The management of the company ran the risk of being arrested if the company's productivity increased and expanded its production to more than the licensed capacity plus 25%. While producing more than the licensed capacity was illegal, the company, at times, subjected itself to the risk of going to jail. After all, our forefathers had gone to jail for freedom and we did not mind going to jail for producing more in a climate of shortages.

There used to be a quota system, preferential allotment or out-of-turn allotment. There was a quota for armed forces, quota for .doctors and there was a quota even for members of Parliament. With this quota .system, the leftovers went to the general public. In one particular year, Bajaj Auto was able to deliver only 4000 vehicles when the waiting list was 400,000. I think that we deserved a place in the Guinness Book of World Records for a consumer item in a waiting list for a period of 10 years. That is why people hastened to book a scooter. During that period of time, scooters were ruling the roads. People would book the scooter in the name of Baby Bajaj because the baby was not born and not named. The scooter was an automatic choice in the dowry list. It is not that we supported the dowry system, it is because the scooter became a status symbol in that era of shortages. Marriages, at times, did not materialise or were postponed.

Madhur Bajaj Madhur Bajaj is an alumni of Doon School, Dehra Dun. After obtaining his B Com Degree from Sydenham College, Bombay, in 1973, he did his MBA at International lnstitute of Management Development (IMD), Lausanne, Switzerland, in 1979. He is the Past Chairman of Confederation of Indian Industry (Western Region) and its present National Council Member. He is Chairman of CIl's National Committee on Latin America. He is the President of SIAM (Society of Indian Automobile Manufacturers), an apex association of India automobile manufacturers. He is also the Vice President of Mahratta Chamber of Commerce, Industries and Agriculture (MCCIA), the apex Industries Association of Pune. He is the member of the 'Advisory Council' of Department of Management Studies of the University of Pune. Bajaj is a Director of Bajaj Auto Limited, Bajaj Electricals Limited and Maharashtra Scooters Limited, amongst others. He is currently the Vice Chairman of Ba}aj Auto Limited - a leader in the motorised 2 and 3 wheeler sector. He is the recipient of the Vikas Rattan Award from the International Friendship Society of India, for enriching human life and outstanding achievements.

 
Another feature of the highly controlled economy was the price control, where the prices were determined on cost basis. So, in a way, inefficiency got rewarded by allowing higher prices to be charged. Of course, quality was not an issue and R&D culture was non-existent. I recall Nani Palkhivala bitterly criticising this non-virtuous cycle of restricted production and low prices leading to high premiums which led to the generation of black money; the brokers became very rich as they found thousands of fake names to book the vehicles; the customers and even the dealers had a hard time, because after ten years the signatures had changed and therefore affidavits had to be submitted. Nani Palkhivala at that time, instead, advocated a virtuous cycle whereby the manufacturer will charge the market price and a higher margin, thereby eliminating the black money, as the margin went to the manufacturer and not to the broker. The manufacturer could use that extra money to build up capacity and increase production to eliminate the shortages.

With the liberalisation of auto sector in the mid-80s, the economy opened up bringing competition in its wake. Now, the situation is that we have to sweat it out to sell a vehicle. At that time, people used to say, 'If you make a good product no marketing is required.' They are not saying that anymore. The sellers' market got transformed into a buyers' market. It required a major mindset change amongst both the manufacturers and the dealers to tackle the new situation. Today, the consumer is the king. He is knowledgeable as he checks out with others and is flexible about his loyalties. He can move from one brand to another without blinking. He knows what he wants and which vehicle from which stable comes closest to his need.

With great anguish, very recently, Bajaj Auto had to discontinue the production of Chetak, which sold one crore units over the last thirty years. We have to recognise the fast changing tastes and expectations of today's consumer. Every second customer wants a new model or at least an upgrade. Segmentation is perhaps the first thing we learn in marketing. But how many of us have put it in practice when it comes to retailing? High net worth individuals demand and deserve a high quality service. You can't mix gold with silver or bronze. You can't even mix silver with bronze. And, therefore, auto industry has to look at different segments and needs to consider separate retailing for those different segments.

Bajaj Auto has initiated the concept of pro-biking that is customer specific, wherein you bring in the ambience, the ease of convenient hassle-free dealings and a pleasant experience to your high end customers. So, it is from a push to a pull strategy. A pro-biking showroom offers consumers an opportunity to test-ride the bikes of their choice on a dynamometer that allows them to view various features such as engine revolution, top speed, braking ability and distance travelled. A beautiful ambience, knowledgeable & ever helpful sales staff and IT-enabled services provide a great experience to the customer. We have been greatly encouraged with the response to pro-biking initiative. And, we are going to have more of them.

If you want to have a competitive edge, consumer satisfaction is not enough. You need to move towards 'consumer delight', and if you want to stay one-step ahead to 'consumer ecstasy'. The brand image would now on be determined by many things, but the environment and experience that we create at our retail outlets will be the chief one. No longer salesmen can afford to ask a customer "What is that you have come to buy?" He has to be trained to understand the needs of the potential buyer, match and select a vehicle suiting his needs and to explain to him why that particular vehicle matches his needs. For that, the sales officer must know the products well with a good grasp of their respective features. He or she also has to help his/her valued customer in the selection of the suitable finance and insurance schemes and choice of accessories, and be equipped for effective response to all the customer queries. So, as a manufacturer I want my dealers to be information powerhouses to tackle the empowered consumers. And no more, I warn you, is going to be the case where an inefficient dealer will not be replaced!

The major difference I noticed between service providers in the developed countries as compared to ours was the level of sophistication, both in showrooms and workplaces, in terms of personnel. Yes, we need to have a greater focus on training and development. Nothing happens by itself, you have got to do it. Secondly, a high level of e-connectivity - not only with the principals but also amongst dealers themselves, is imperative in today’s and emerging environment. This leads to quick transfers of spare parts and even vehicles. Where a dealer finds that there is a shortage, he is able to call up the other dealer friends to send the vehicles/parts needed. Some of the automobile dealers have e-connectivity even with their customers.

Currently in India, we are, by and large, limited to having a hotline with our OEMs. This needs to change. The global trend is to keep a logbook for every vehicle to remind the vehicle owner so that he doesn't miss out on the periodical services and oil changes and other checkups required to be carried out on his vehicle. A history card of repairs and replacements must be maintained much like the patient cards in hospitals.

There is a fierce competition among manufacturers and also among the dealers. Those enjoying competitive edge will survive. Doing small things, like, timely help and support to stranded vehicles on roads via what I may term as mobile mechanics, can help acquire the competitive edge. Many of the automobile dealers are doing this. However, we need to go a step further: the mobile numbers of these 'mechanics-on-wheels' must be printed on the vehicle itself for ready availability to the stranded customer so that he or she doesn't have to struggle to contact the roaming mechanics. These small details make large impacts and customer consider it a very high value. You get a further competitive edge by facilitating pick-up of the vehicle from your customer's office or his home in the evening, repairing it at night and delivering him back before he takes off for the office on his vehicle the next day. Do encourage e-connectivity amongst your customers belonging to a particular segment. They could perhaps form a society or a club sharing their experiences on the vehicle. Two such examples, I have, are: the Harley Davidson and the Piaggio clubs. How about creating and presenting each customer a CD or a film for helping him understand his vehicle, how to maintain it, the safety issues and also optimising fuel efficiency by proper driving habits? Alternatively, encourage him to visit your website where such information is available. Merchandising could increase footfalls to your showrooms. Whenever I am in USA, I never miss a chance of going to Harley Davidson, not to buy their bikes but to buy their footwear, their jeans, their jackets, their sweaters and the like. They have very strong branding flavours. So, these items become walking advertisements.

Over the years, the OE's warranty costs have reduced drastically. It is not only a reduction in costs and inconvenience for the customer but also means doing away with the embarrassment and the inconvenience he felt when his vehicle was stranded on the roads.

Also, there was a time when there existed a difference between vehicles sold in the domestic market and the export market, generally termed as the 'export model'. This differentiation is not there any more. What remains is the difference in features and specifications to meet distinct preferences of varied markets.

When I visited Auto Expo, I found that the suppliers were mentioning to me that there were two components: one for the domestic market and another for the export market. Frankly, I was surprised to see that. In conclusion, the need of the hour is the customised products and services, as behaviour patterns differ from region to region and from time to time while certain features would remain constant. You need to be flexible, amongst others, to meet the particular needs of your customers. So, a continued development of products and technology integrated with retailing and services, and transforming a sale from a mere transaction to a wholesome experience will be the way to go. Those of us who don't, I am afraid, will be left behind.

Auto retailing is undergoing significant transformation and is continuously evolving to meet the growing aspirations of the customer. I am confident that you have it in view to take retailing to the next level. But do remember that it is the early bird that catches the worm. Be the first in providing new services and getting the crucial customer vote by providing care and concern that customers will cherish.