Feature

Revving Up

Yamaha is on a mission to capture a larger market share, by changing focus to higher-powered motorbikes and sportier, unisex scooters

RA Chandroo

Twenty-nine-year-old Ronnie Thomas’ day job at Juego Studios is that of a 3D artist, which he says matter-of-factly is visual development and games. This soft-spoken young man rarely lets his excitement show, but he cannot hide his enthusiasm for motorcycling. 

As one of the founding members of the Yamaha Riders Club (YRC) in Bengaluru, Thomas’ romance with the brand started eight years ago. In 2011, he bought his first motorcycle, an FZ16. The following year, he bought the YZF-R15 and, in 2017, money was spent on YZF-R3. None of these came cheap with the YZF-R3 costing a handy Rs.330,000, taken out as a loan. “I really wanted it at any cost,” he says. The next bike he wishes he could buy is the YZF-R1 costing an eye-popping Rs.2.5 million. 

YRC’s members meet one Sunday every month at 5 am at the Tumkur exit of Hoskote, in the outskirts of Bengaluru. The camaraderie among bikers is not uncommon — you just meet, chit-chat, bike, and ride along.  There are more than 120 YRC members in Bengaluru; the numbers in other cities are hardly anything to talk about. 

The cult of Yamaha is very much existent, it’s not exactly thriving like the other brands like the Royal Enfield or Harley Davidson. Much of its equity actuallystems from the legacy of the RX 100, a bike launched in partnership with Escorts in 1985 which was discontinued in 1996 because it could not stand up against the fuel-efficiency of Her Honda CD 100. 

The Indian market has come a long way from there, but the Yamaha brand has become insignificant. Its sales stood at 796,000 units across a portfolio of seven motorcycle brands and three scooter brands in 2018. As of March 2019, Yamaha commanded a 5% market share in the 21-million two-wheeler market, with motorcycles bringing in 65% of its revenue (see: In the slow lane). 

The Yamaha management in India wants to change this by focusing all its attention on the segment beyond 150 cc. And that means a major overhaul.  

Switching gears

Nothing fascinates Motofumi Shitara more than the colour blue. It’s the Yamaha racing colour and he is wearing it. The chairman of Yamaha Motor India Group has been tasked with reviving the brand. A group veteran with a three-decade stint, he is blunt when he speaks of “not being happy with a small market share”. Coincidentally, Yamaha has been in India for just as many years as he has been with the group. 

Indeed, the story of Yamaha in India has been uninspiring. Two-wheeler manufacturers such as Honda, Suzuki and Kawasaki entered India around the same time, taking the joint venture route with an Indian company — Hero, TVS and Bajaj, respectively. Honda is the only one that actually charted out a good growth story for itself independently. 

The anomaly of being in India for so long and yet having limited visibility was among the first things that Shitara noticed after assuming charge in early 2018. One of the ways to correct it was to increase the media spend, an area where the brand had been quite dormant compared to its rivals. “If you are in the business of motorcycles, image is a big thing. Your brand has to be visible,” says the 56-year-old. The two-wheeler industry in India for 2018 had an overall media spend of around Rs.27 billion across mediums, with print, television and radio taking away Rs.18 billion. The biggest spender was Honda Motorcycle And Scooter India at over Rs.7 billion.

Historically, Yamaha has spent around Rs.550-600 million each year. But, more importantly, Yamaha spent almost nothing on digital. “There was very little Yamaha advertising earlier and we had to get aggressive,” says Shitara. Last year, the company is estimated to have spent Rs.100-120 million on digital and Rs.150-180 million on outdoors.

The decision to bump up digital advertising spend appears to have made a difference. The YZF-R15 (for Rs.141,000), a 155 cc bike, more than doubled its sales to 99,402 units this fiscal year. 

According to Shitara, advertising helped in promoting Yamaha as a sporty and stylish brand, with The Call of the Blue campaign, an initiative launched last August, to create a distinct visual identity across the company and dealerships. In essence, it meant a complete repositioning of the brand with a thrust on racing. The campaign, with events held in six cities, was aimed at getting people to experience Yamaha.   

The success of The Call of the Blue only reinforced Shitara’s strategy to play in the 150 cc segment and beyond. 

Until 2016, Yamaha’s strategy was restricted to its four to five unimpressive offerings in the 100-125 cc category without much thought over the 150 cc-and-beyond range. Till then, at least 55% of the revenue came from the commuter segment, with FZ being the relatively large performer in the 150 cc-part. Once Shitara took over, he focused on the R15, a 155 cc bike in particular, and reduced focus on the mass segment.

In March this year, the company launched the MT 15, a 155 cc offering for Rs.136,000 (ex-showroom Delhi). Shitara says research indicated that people were looking for a change from the existing product offerings (key competitors include Bajaj Pulsar, TVS Apache and the KTM 125 Duke). “More specifically, there was a need for a motorcycle with a strong identity,” he explains. Yamaha filled that gap with its “sporty and stylish” positioning.

It was a tricky decision on price since Pulsar and Apache were below Rs.100,000, while Royal Enfield’s entry level 350 cc product was at Rs.139,000. According to him, there was a mixed response on price. “We are clear that our products come at a premium and believe the customer will pay for better quality and robustness. That has to be explained to the dealers,” says Shitara. The initial response has been good — 5,200 units of MT 15 were sold within a fortnight after its launch (see: Race to premiumisation). The KTM 125 Duke (the Austrian company is part-owned by Bajaj Auto and has been in India since 2012) launched late last year at Rs.118,000 sold 3,069 units. Overall, the growth in the premium segment (150 cc and beyond) rose to 8.4% compared to 6% in 2017. 

Roughing it out

The 100-125 cc bikes account for 65-70% of the overall two-wheeler market by volume due to its affordability. Of the 21 million units in the two-wheeler market, motorcycles took away 14 million units, with scooters accounting for the rest.

Jigar Shah CEO, Maybank Kim Eng SecuritiesYamaha’s tryst with the 100-125 cc segment started off with the Crux, launched in 2001 as a replacement for the RX 100, followed by other brands among which were Libero (105.6 cc), Gladiator (123.7 cc) and more recently, the Saluto (125 cc). In most cases, Yamaha was more expensive by over 15% in this most price-sensitive segment. Hero MotoCorp’s Splendor (100 cc) and HF Deluxe (100 cc) models have been among the top three selling two-wheelers for a long time, doing anywhere between 350,000-400,000 units every month, in a market where around 1.75 million motorcycles are sold. Yamaha sells approximately 35,000 units a month. “Irrespective of the segment, to be successful in the two-wheeler business you have to be in the top three,” says Jigar Shah, CEO, Maybank Kim Eng Securities.

For a while, Yamaha tried to balance its product offering and looked for a presence in the segment up to 150 cc and the premium one beyond that. After a lull in its mass segment offerings, driven by almost no success, it attempted a re-entry with the Saluto (125 cc for Rs.57,000) in 2015 and an enhanced version the following year. “We realised it was difficult to penetrate this segment,” says Shitara. The two Saluto brands (Saluto and Saluto RX) sell no more than 5,000 units each month, a clear indicator of the gap between them and Hero MotoCorp. “To a customer in the mass segment, product recall, resale value and infrastructure related to the repair of the motorcycle are key parameters. Therefore, the dealer network is quite critical,” says Shah. Yamaha’s dealer network — of 600 outlets — is much weaker than Hero’s or Bajaj’s, who have at least 4x the number.   

While the dealer network is important, product positioning also becomes crucial for an automobile company. The dealer network gives the brand visibility, but that  advantage is restricted to the distribution part. It is important for a company to get the product right, and that is where Pulsar and Apache scored. If dealer network was the only strategic advantage, Hero would have been a success in the 150 cc-and-beyond segment, but it continues to struggle. Hence, Shitara says, “We diverted to what the Yamaha brand is globally known for — performance, style and fun-filled motorcycling.” 

HS Goindi Former president (marketing), TVS MotorHS Goindi, former president (marketing), TVS Motor Company and now a consultant, thinks there is a rationale to be in the 150 cc segment. “It is not just one where there is growth, but margins are far healthier as well,” he says. At an Ebitda level, margins are 7-10% in the 100-125 cc motorcycle segment, while it is at least 15% in 150 cc (and beyond) motorcycles. On an average, the segment beyond 150 cc does 2.5 million units each year, with more than 75% of the business coming from 150-180 cc. 

Shah says the growth story in 150 cc and above is waiting to unfold. “From around 15% of the total volume, it can easily hit 25-30% in five years,” he says, citing higher aspirations and spending power. Without a doubt, the customer here spends more freely than the 100 cc buyer. 

Goindi has no doubt about Yamaha’s brand equity. Even though it has been a small player for a long time, it makes strategic sense for it to focus on the 150 cc segment. “However, it is critical for them to be consistent with the strategy for the next seven to 10 years, regardless of how the market or segment behaves in the short-term. Historically, they have not managed to do that very well,” he says. 

To be fair, there is no player who can lay claim to a strong presence across segments. For its dominant presence in the mass segment, Hero has not had it easy in 150 cc motorcycles, with none of its brands (Achiever and Xtreme) figuring in the top-20 list. Likewise, though Bajaj Pulsar’s 150 cc offering (priced from Rs.75,000) is the leader in that space with over 40% market share in the 150+ cc segment, its Platina (100 cc at Rs.47,000)in the mass segment sells less than 60,000 units each month. 

Ambi Parameswaran Founder, Brand-Building.comBut, it is critical, points out Ambi Parameswaran, founder, Brand-Building.com, for each two-wheeler manufacturer to have that one anchor product. “For Hero, it’s the Splendor, while Bajaj has the Pulsar and TVS is known for the Jupiter Scooter (110 cc, priced from Rs.52,000 and with 10-12% market share in the scooter segment). It’s not very clear what the anchor for Yamaha is,” he says. 

The next move

While Yamaha is trying to carve out a place for itself in the motorcycle segment, it has found a niche in scooters with Fascino. The Japanese company’s top selling brand (113 cc priced from Rs.55,000) clocks 15,000-20,000 units each month.

Scooters had taken off in a big way in India. With the young student and the working woman at the core of it, this market stands at over six million units annually. Honda is the leader in this segment selling 250,000 units a month and a market share of over 50%. It has been five years for Yamaha in this business (with Fascino, Ray and Alpha) with average sales of around 32,000 units a month and a market share of 8%. Scooters contribute 35% of the company’s revenue.

Shitara says the strategy is to have a high-end product in motorcycles and a mass one in scooters. There is a lot of interest in the 100-125 cc segment, and all the three Yamaha brands are 113 cc offerings. “We want to play in the sport and fashion part of the scooter business,” Shitara adds.

However, scooters seem to be on a slippery slope. After five to six years of sustained growth, the market for scooters has slowed down from 10-15% each year to flat growth. Goindi attributes it to factors such as rising insurance costs (by 5x) and alternate modes of transport such as metro and taxi aggregators in cities. These affect scooter sales more, since they are largely an urban phenomenon and preferred by urban women and college students; while motorcycles continue to sell in numbers in rural areas. The top 50 towns and cities account for 70% of scooter sales. “This is a short-term trend and growth will come back in the next few years,” Goindi predicts.

According to Shah, scooters are  mostly the second vehicle after a motorcycle. “It will be interesting to see how growth pans out from this point, with scooters (selling seven million units per annum) already at one-third of the overall two-wheeler market,” he says.

The stage is set for Yamaha’s next round, which could very well see the rollout of motorcycles in the 150 cc-and-beyond band. It is a niche they are used to playing in and one that has brought them success across the world. But, unlike what they have done in the past, it is time for patience and focus more on innovation, with differentiated products.

The company realises that too, and has set up its fifth global R&D centre and first in India, one of the fastest growing two-wheeler markets in the world. Yamaha has invested around Rs.600 million in the past two years in R&D in the country. The Indian customer, fast evolving, will reward them in no small measure.

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