Hero Motocorp's five-year warranty scheme is yet to rev up the auto major's sales
On April 13, the world’s largest two-wheeler maker Hero Motocorp shocked the market by announcing a five-year warranty across its motorcycles/scooters purchase (five years or 70,000 km in case of motorcycles and five years or 50,000 km for scooters). Hero broke the norm of offering a year or two of warranty on a two-wheeler. It was seen as a strong marketing move from a company that had lost its key technology partner, Honda, and was keen on protecting its market share and leadership.
Six months later, the numbers are not as groundbreaking when compared to the move, with Hero’s domestic sales having remained flattish in the past two quarters. According to Society of Indian Automobile Manufacturers, Hero sold 2.5 million motorcycles between April and September this year in domestic market against 2.6 million in same period last year. Over the past six months, Hero’s motorcycle market share increased from 54% at the beginning of FY14 to 54.1% in Q1FY14, but declined to 48.7% at the end of Q2FY14, according to a report by ICICI Direct.
But Hero’s marketing head defends the numbers. “We bucked the trend in the first half of FY14. Retail volumes were up 7% without any new launches, while the industry grew at only 3%. The warranty scheme, along with other factors, contributed to this,” says Anil Dua, senior VP, sales, marketing & customer care, Hero Motocorp. He elaborates further that the ten months in question, other than October and November, are non-festive months. “But for the first time, we registered 5 lakh and 5.5 lakh retail sales in the non-festive months of April and May.”
However, analysts caution that the momentum may not continue beyond a point. “In the first quarter of FY14, this scheme has certainly helped them gain some incremental volumes. But the fact remains that after parting with Honda, the company has been losing market share and is yet to come up with entirely new products,” points out Mitul Shah, analyst from Karvy Stock Broking. But Dua insists that market share loss wasn’t the consideration for launching the warranty scheme. It was more a part of brand-building. We have done extremely well to retain our market share.” More importantly, Dua points out that the offer has not been matched by any competitors. “There is a cost attached to it and a lot of homework involved,” he says.
Motorcycles in the 75-100 cc range with models such as Splendor and Passion continue to be the bread & butter for Hero, contributing 75% to its sales. Surjit Arora, analyst with Prabhudas Lilladher, points out, “On a year-to-year comparison, last year, Splendor’s numbers were weak. But this year, Splendor sales have picked up and that could be owing to the warranty scheme.” Dua also believes that. But then, the real test for Hero is still to come. The first two-wheeler from Hero’s own stable will be launched in the coming quarter, and that will be critical for Hero to pull in the numbers.