Executive Summary: Senior managers at Eicher Motors faced a tough choice. They had been given one final chance to revive the loss making Royal Enfield - their motorcycle division. For that they wanted to modernise the bikes to appeal to a wider customer base. But existing customers wanted their Bullets just the way they had always been. By modernising, Royal Enfield risked losing traditional fans without possibly gaining any new customers. The case study details how it met the challenge.
The year 2000 could have been decisive. That was when the board of directors at Eicher Motors decided to either shut down or sell off Royal Enfield - the company's Chennai-based motorcycle division, which manufactured the iconic Bullet motorbikes. For all its reputation, the sales of the bike was down to 2,000 units a month against the plant's installed capacity of 6,000; losses had been mounting for years. Though the bikes had diehard followers, there were also frequent complaints about them - of engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil leakages. Many found them too heavy, difficult to maintain, with the gear lever inconveniently positioned and a daunting kick-start.
Despite the bikes' fan following, the motorcycle division was bleeding
THE WAY OUT
Appealing to a wider base, making the products more reliable
Modernising the bikes without taking away their unique identity
Modern technology used, but vintage look retained; improved management practices
Just one person stood up to the board, insisting Royal Enfield should get another chance. He was Siddhartha Lal, a third generation member of the Delhi-based Lal family, promoters of the Eicher group of companies. Lal, then 26, was an unabashed Bullet fan: he even rode a redcoloured Bullet while leading the baraat (procession) to his wedding venue, instead of the traditional horse. "The board agreed to give me a chance," says Lal. "It was not because of its confidence in me, but because the business was doing so badly it could hardly get any worse."
The petrol tank's design was left largely untouched as it contributes to the bike's sturdy, vintage look
Lal felt Royal Enfield could still be saved. The bike had its reputation, a cult following, an instantly recognisable build, and aspirational value. Changes had to be made to keep up with the times and make the bike more acceptable, and therein lay the problem. Royal Enfield fans liked the bikes exactly the way they had always been. "We needed changes to attract new customers but by doing so risked losing existing ones," says R.L. Ravichandran, whom Lal brought in as CEO in 2005 as part of his revival effort. Ravichandran had earlier worked with both TVS Motor and Bajaj Auto. "We were in a peculiar situation," he adds.
The change had to be a calibrated one. The mistaken notions of prospective customers had to be addressed, and any reservations about Bullet and Thunderbird, which was launched in 2002, removed. At the same time, Lal and Ravichandran were clear that the individuality of Royal Enfield bikes should not be compromised. "We did not want to go down the commuter route, but instead looked at the leisure segment," says Ravichandran.
After much testing, the silencer was extended to capture, to the extent possible, the throb of the old engine
Retaining the bikes' rugged looks was a given, including the build, the design of the head lamp and the petrol tank. But should the gears be shifted close to the rider's left foot - as in most bikes - or retained on the right side? The question gave Lal and his team many sleepless nights, since long time users were dead opposed to the change. The engine was another thorny question. The old cast iron engine was a relic of the past. Its separate gear box and oil sump design made it prone to oil leaks and it seized up very often. Its ability to meet increasingly strict emission norms was also suspect. A modern aluminium engine would eliminate these problems, but it would lack the old engine's pronounced vibrations and beat - which Royal Enfield customers loved. Laws of physics made it impossible to replicate these with the new engine.
Diehard fans opposed shifting the gear lever to the left side of the bike, but the company went ahead anyway
There are many global examples of auto companies going under following a radical change in the engine of their products. Yet Lal and his team proceeded to both alter the position of the gears and design a new engine. "We retained many of the old engine's characteristics - the long stroke, the single cylinder, the high capacity with push rod mechanism," says Ravichandran. But the new engine, unlike the old, had hydraulic tappets, a new engine arrangement, new metal and fewer moving parts. Obviously, it did not produce the vibrations and the beat of the old, but international experts were consulted and sound mapping carried out for over 1,000 hours to ensure it produced the maximum rhythmic vibrations possible and a beat, which was 70 per cent of the amplitude of the original.
The new engine had 30 per cent fewer parts and produced 30 per cent more power than the old, with better fuel efficiency. By 2010, all Royal Enfield models had begun to use the new engine. Two other problems needed to be addressed: the quality of some of the components Royal Enfield bikes were using, and the sales experience. To tackle the first, shop floor processes were fine tuned, while suppliers were exhorted to improve quality levels. Royal Enfield also embarked on a large scale internal exercise to tone up performance. "We declared 2006 as the year of getting back to the basics," says Ravichandran. "We also formed a field quality rapid action force to bridge the gap between customer expectations and the reality."
Slowly, the tide turned. Engine related problems and oil leakages in Royal Enfield products almost disappeared. By 2008 dealers were reporting lower workloads. Warranty claims fell sharply too. Malfunctioning of the sprag clutch, on which the electric starter depends, declined, for instance, from five per cent in 2005/06 to 0.2 per cent in 2010/11. Royal Enfield also began conducting marquee rides to promote leisure biking. "Such steps removed the fears about our products' reliability some customers may have had," says Venki Padmanabhan, who succeeded Ravichandran as CEO earlier this year after Ravichandran was elevated to the board of Eicher Motors. To improve sales experience new company-owned showrooms were launched and dealerships expanded.
In October 2008, Royal Enfield launched in Germany its newly designed 500cc Classic model - inspired by J2, a 1950 model Bullet - with the new engine. It was a success, admired for its performance and fuel economy.
The new aluminium engine improved the bikes' performance, but could not recapture fully the beat of the old one
Emboldened, Lal launched it in India in November 2009 initially as a 350 cc bike, priced at Rs 1.20 lakh. This proved a hit too. "Now, our capacity utilisation is 100 per cent. Yet there is a six months waiting period for deliveries,'' says Venki. "We plan to double our capacity soon to 1.5 lakh bikes."
Today, Royal Enfield's problems are of a different kind. How should it scale up without diluting brand equity? It also faces challenges from iconic global brands such as Harley-Davidson which has entered the Indian market. With other options available, will its customers continue to sit out the six-month period it takes to provide deliveries?
Driving change when the chips are down is easy: there is no other option. In Royal Enfield's case the change worked for it. But can Siddhartha Lal and his team do the same when the going is good?
Read also what our experts think Royal Enfield should do. We welcome your responses. Write to us at firstname.lastname@example.org. Your views will be published in our online edition.
|EXPERT SPEAK|Needs more research focus
It is an ideal case study in product planning, process and brand management: B. V. R. Subbu
Royal Enfield's turnaround is an ideal case study in product planning, process and brand management. More important Siddhartha Lal's and R.L. Ravichandran's passion to do the right thing, to remain patient, and keep an ear open for the customer, has been transmitted through the rank and file of the company, and that has ultimately made all the difference.
A number of quality initiatives have made the Royal Enfield product a significantly better proposition today than say in the 1990s. But customers, particularly the urban recreation seeking ones, still tend to crib about its reliability. The 'bike cubs' love their Bullets, but when it is a ride to Leh they are contemplating, they still cross their fingers. Rural and small urban centre customers, albeit with different performance expectations, are now also starting to look for greater comfort and better fuel efficiency. These are today's challenges.
Clearly, greater research focus on power train and brakes is an imperative. As things stand, there is no rocket science involved in making bikes: once you have a good power train and a good frame everything else falls into place. The rest is built around efficient production and procurement systems on the one hand, and distribution and brand building on the other. While the former is well within the company's capabilities, on the latter front, Ravichandran - who has joined the Eicher board - will surely be missed.
Triumph and Harley-Davidson will not make an impact in India, but what if Japanese versions of classic bikes start being assembled in India? The response that high end Honda bikes have got in recent times is a good indicator of how consumer taste is changing.
V. R. Subbu, Bike enthusiast and former President of Hyundai Motor India
Strategy will be key
Going forward, Royal Enfi eld needs to clock more revenue and profits: Y. L. R. Moorthi
For a company, success can be defined by three parameters - market share, profitability and category substitution. Royal Enfield will probably have profits but not market share if it aims to be a niche brand. It will also not look at category substitution. That means it will be profitable but not big. This goal is easy to achieve given Royal Enfield's traditional strengths. And the story so far has been good for a brand that was given up as a stretcher case. But going forward it needs to clock more revenue and profits.
While Harley-Davidson and others can be credible threats, much depends on how Royal Enfield plays its strategy. In several product categories like detergents, Indian brands have done as well as multinational brands. Then again we have the consumer electronics market where the Koreans have more or less wiped out everybody else. So what happens to Royal Enfield depends on what it does. Competition was always there and will remain.
The questions before Royal Enfield now: what is the pen profile of its prospective buyer? How is this pen profile different for different offerings of Royal Enfield? For instance, Bajaj says while its 'Pulsar' is an India bike (urban), its Boxer is a 'Bharat' bike (rural). In this sense the buyers for each of the company's offerings must be clear. Also will the niche that appealed yesterday, appeal today? What should Royal Enfield do to get today's aspirers on board? What are the volumes it hopes for in this niche? How to stay profitable there? These will be the questions for tomorrow.
Y. L. R. Moorthi, Professor (Marketing), Indian Institute of Management, Bangalore