TI Cycles: New Product Strategy (A)

Mukund R Dixit and Abhinandan K Jain

describes a real-life situation faced, a decision or action taken by an individual manager or by an organization at the strategic, functional or operational levels.

MANAGEMENT CASE

n a meeting held on 11th April 1997, Mr Ramkumar, Vice President and Mr K K Paul, General Manager, Marketing, of TI Cycles of India (TI Cycles) were discussing the opportunities to increase the sales and market share of the company. This had become imperative in view of the near stagnant sales and increased competition in the standard and special bicycles. They were quite sure that the companys strength and standing could be enhanced through new product introductions. For this purpose, they reviewed the companys performance, developments in domestic bicycles market, competition and competitiveness in domestic and international markets, and the companys role in developing the Specials category of bicycles. Ramkumar, 40, was a post-graduate in management from the Indian Institute of Management, Ahmedabad and a cost accountant. He had taken over as Vice President of TI Cycles in 1995. Earlier, he was General Manager, Finance, of TII Group, the parent holding company of TI Cycles. He had worked for 12 years in all with the Group. He had also worked as the head of finance at TI Cycles itself. Paul had been at TI Cycles in the marketing function in different capacities including exports and managing the eastern region immediately before taking over as the General Manager.

COMP ANY BACKGROUND COMPANY

TI Cycles was promoted by the family of Murugappa Chettiars in September 1949 in collaboration with Hercules Cycles & Motor Co. of UK to indigenously produce complete bicycles, bicycle parts, and substitute imports. The factory at Ambattur, a suburb of Madras, now Chennai, Tamil Nadu, was commissioned in 1951. It was a significant technical and managerial challenge to put up such a unit in an industrially less developed region. The family had also promoted other enterprises like Tube Products India Ltd., TI Diamond Chain, TI Miller, Wright Saddles India, and TI&M Sales. Together they formed the Tube Investment Group. In the 1930s and 40s, the family was involved in money lending in Burma, Malaysia, Sri Lanka, and Vietnam. In 1940, the group decided to give up banking and venture into manufacturing. It set up Ajax Products Limited and began manufacturing steel products and abrasives.

KEY WORDS

Marketing New Product Internationalization Completition .amily Values

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Since the inception of TI Cycles, the members of the Murugappa family had shown keen interest in its growth. It was a training ground for inducting younger members of the family into business. In 1996-97, Mr Vellayan, a member of the Murugappa family, was the President of Tube Investment Ltd. and Mr Subbiah, an elder member of the family, was the Chairman. The family believed in the values of fairness, truth, honesty, and human considerations in treating people in managing its businesses. The family advocated strict adherence to the laws, regulations, and rules of the land. It was also keen on making a distinct contribution to the well being of the society.

ORGANIZA TION OF TI CYCLES ORGANIZATION

TI Cycles was organized functionally. The unit head, called the Vice President, was responsible for the overall functioning of the unit and reported to the President of TII Group. The head of production was responsible for purchase, maintenance, quality control, and stores of all varieties of cycles. Similarly, the head of marketing was responsible for pricing, promotion, distribution, and product management of all varieties of cycles. He was assisted by regional managers in South, North, West, and East. The head of personnel looked after recruitment and training of employees up to the managerial level. The Manager, Finance, was in charge of day-to-day accounting and working capital management. The head of Research and Development was in charge of product upgradation and new product development. The Research and Development division was equipped to develop product and component prototypes. For quality testing and painting, it relied on the facilities of the production department. The functional heads reported to the Vice President of the unit. The Vice President together with the functional heads constituted the top management committee (TMC) of TI Cycles. They met once a month and when needed to plan and review the performance of the unit.

PRODUCT RANGE
The early emphasis of TI Cycles was on manufacturing quality bicycles as per the design and drawings from the collaborator. It started with the assembly of Hercules brand of Standard cycles in its plant at Ambattur. Hercules cycle was promoted as a life

companion to the consumer. It was aimed at the office goers and workers. The cycle was described as sturdy made from true temper steel to stand rigorous use. The advertisement for the product mentioned the following: Strong yet smooth to ride, Hercules is built to last you a lifetime. Made to the highest standards of quality and yet moderately priced, Hercules offers you the ideal bargain in bicycles. The product created a market for indigenous bicycles in India. Encouraged by the success of Hercules, the company introduced a cycle under the brand Phillip's for the student segment in 1955. The advertisement for the product mentioned the following: He is good at studies He is a leader in sports He is on his way up His cycle is Phillips. Phillips is handsome its sleek, powerful look expresses your taste best. A super bicycle made for young people like you. Both Hercules and Phillip's were the registered trademarks of Hercules Cycles and Motor Company of UK. TI Cycles diversified into Specials category with an eye on getting premium prices. The cycles were sleek with features like wire brakes and multiple colour options. In 1969, the company introduced the first range of cycles in this category under the brand BSA Aristocrat. The company also introduced a special cycle with cross frame that was easy to climb on to and ride by ladies. It offered its models in black and green colours. TI Cycles produced 36,000 bicycles in the year 1953. The production increased to 89,000 in 1955. A total of one million cycles were produced by 1960. The second million mark was reached in December 1963 and the third million in April 1967. Till the 70s, TI Cycles was the largest producer and marketer of bicycles in India. With the increase in the volume of cycles sold, the demand for replacement of cycle parts increased. This created an opportunity for entrepreneurs in Punjab, especially Ludhiana, to set up manufacturing units for independent parts. Over the years, some of them integrated forward to assemble and sell complete bicycles under their own brand. With a start like this, Hero Cycles, promoted by Mr B M Munjal of Ludhiana, became the largest producer of low cost, value for
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money Standard bicycles. The company not only harnessed the opportunities provided by independent cycle parts manufacturing units in Ludhiana, but also promoted dedicated units to improve its position. A nine month strike at TI cycles in 1978 paved the way for the decline of its leadership in the Standards segment. In 1989, Hero Cycles created the sub-category of Mountain Terrain bikes (MTB) and in 1990, TI Cycles responded with the introduction of Streetcat. In 1994-95, the production of cycles was 19,46,000. The production increased to 2,058 thousands in 199596 but reduced to 1,930 thousands in 1996-97. However, the number of employees had reduced from 4,216 in 1994-95 to 3,236 in 1996-97. In 1996-97, the company marketed its cycles under two brand names: Hercules and BSA. The BSA brand was more profitable than the Hercules brand. The cycles were in different ranges and had different features. A workhorse cycle was a standard cycle in black colour with horizontal handle. The sports and racing cycles had thicker tyres. The luxury cycles had multiple colours, wire breaks, thin frames, and thin tyres. The range of cycles targeted the adults, juveniles, and kids in both male and female segments separately. For example, Hercules Captain aimed at the 15 years and above male segment, was a 20 high cycle with no frills except a PVC saddle and a chain cover. Hercules MTB Jr., aimed at the 8-12 years old boys segment, had oversized tubing frame, solid deflected plate carrier, and wheel reflectors. It was in red colour. BSA Lady Bird Jr., aimed at the 8-12 years old girls segment, was a blue coloured cross-tube frame slim cycle with a specially designed wire mesh basket. The company offered many variants with subbrands under both Herculus and BSA brands. The

variants were built around alternative designs of carrier, cover chain, tyres, basket attachments, frame shapes, trainer wheels, etc. The price of Hercules brand of cycles ranged from Rs 1,450 for Hercules Kids in the 4-7 years age group to Rs 2,275 for Hercules Cannon Barrel meant for kids above nine years. The price of BSA brand of cycles ranged from Rs 1,300 for BSA Snowwhite meant for children in the 2-4 years age group (kids) to Rs 2,235 for BSA Lady Bird.

NEW PRODUCT DEVELOPMENT AND INTRODUCTION

TI Cycles had concentrated on Specials since early 80s and had continuously introduced new products and services. These were to improve the offerings and/ or meet competitive challenges/introductions. For example, the company introduced a number of new products in the last three years to improve the sales of MTB category that had attracted the competitors after it had reactivated the category with the introduction of Streetcat (Exhibits 1 and 2 give the background on the introduction of SLR and MTB categories). Table 1 provides the details of new product/service introductions by the company in the last three years. Product Management, Product Development, Manufacturing, and Purchase Departments jointly shared the new product design and introduction activity under the overall guidance of General Manager, Marketing and the Vice President. A Senior Product Manager headed the Product Management Department and three Product Managers assisted him. Each of the Product Managers was responsible for a set of products for which they prepared marketing plans and monitored the same. The Product Managers

Table 1: New Product Introductions: 1994-95 to 1996-97

Category 1994-95 Standards SLRs Kids MTBs BSA-SLR Photon BSA Lady Bird Dinosour Bazooka Rock&Roll Brand 1995-96 Cindrella FST Gripshift Conquest Cyclinics Total 1996-97 Hercules Supreme Petz MTB Jr CBL Dynamix Trailblazer 1 2 4 8

Service

Source: Company records.

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were generally either MBAs and/or experienced company personnel who had worked in sales and/or marketing. A Manager who was assisted by three Product Designers/Engineers headed the Product Development Department. Product Designers were engineering and/or design graduates with design/ manufacturing/quality experience. The Product Management Department, as a part of its task of preparing marketing plans, regularly collected sales and marketing data about the company as well as its competitors and the industry. The data were collected through in-company sources and other secondary sources. For managing the products, the Product Managers also designed and collected primary information about bicycle buying, competitive positioning, product and communication testing, etc. The primary data were mostly collected through reputed marketing research agencies. On the basis of relevant market information, the Product Managers generated new product concepts for specific target segments. The concepts were tested with target consumers before being handed over to the Product Development Department for specifications and prototype development. Prototypes were tested along with the Product Manager with target consumers and selected dealers. During this phase, the Product Development Department constantly interacted with the Manufacturing and Purchase Departments for checking out and planning of production and sourcing requirements. Adequate samples of selected models were then produced and tested with target customers. The product testing also provided some idea about the likely demand which helped in planning the production. The Marketing Department identified some schools in Chennai whose student profile was similar to that of its target customers. The company also identified some of its dealers for getting feedback about new products and other marketing initiatives and policies. Besides, it had prepared a cycle testing track (MGM stadium) where new models were kept for children and others to ride. This move attracted lot of children and adults who visited the stadium daily and had bicycle rides. Thus, the company used all the three methods (the schools, the dealers, and the track) at various stages of new product design and development to test new concepts, prototypes, and samples.

REACHING THE DOMESTIC CUSTOMER

Initially, the company sent fully assembled bikes to the market. To save the cost of transportation and improve logistics, it changed the format and started sending ready-to-assemble kits to the dealers. The components were put in a cardboard box and dispatched to the dealers by truck. The dealers received the cycles in cases in completely knocked down (CKD) conditions. Each case contained 5, 6, 10 or 16 cycles. The dealer assembled the parts into full bikes at their premise before sale and trained his technicians himself. The company had its dealers in 993 towns out of 4,313 in India. It was represented fully in towns with a population exceeding 1 lakh. However, in smaller towns with a population of less than one lakh, the companys representation was partial. Some dealers appointed sub-dealers to expand their reach. The dealers and sub-dealers could stock other brands of cycles as well. A few dealers stocked automobile ancillary parts and consumer durables in addition to cycles. The company had appointed 40 sales representatives who booked the orders from the dealers and passed them to the central marketing office at Ambattur. The marketing office passed the orders received from the representatives to the production unit for planning the production. The dealers viewed TI Cycles as a supplier of Special category cycles. They had lost interest in selling the Standard category of TI cycles. They expected the company to innovate in features, styles, and accessories, and give them an opportunity to charge premium prices. The fancy cycles attracted customer to the stores. This was reinforced by the behaviour of the sales representatives. A marketing executive remarked: When our sales representatives met the dealers, they encouraged them to book orders for Specials. They mentioned the Standard category reluctantly. In 1996, the company introduced Cyclinics authorized spare parts sales and service cum cycle sales showroom. It was a new concept in the bicycle industry. Mr Nambiar, DGM, (Spares and Service) reflected on the introduction:

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We realized that roadside mechanics were not able to repair the new bikes like MTB. Also, genuine spare parts were important for proper repair of the bikes. The concept of an authorized sales-cum-service showroom (like that for motorcycles and scooters) was therefore conceived. The concept was designed and tested in Chennai from 10 November 1995. We had apprehensions that the conservative cycle buyer might view the showroom as the one where only costly bikes were available. However, the customer walk-in was pretty good and in fact better than expectations. This prompted other dealers to ask for implementing the concept at their premises.

REACHING THE INTERNA TIONAL INTERNATIONAL CUSTOMER*

In the international markets, the company supplied 85 per cent assembled bikes. These were marketed in different countries through importers to supermarkets and through them to consumers. Components were marketed directly to overseas manufacturers. The company started export of bicycles in the early 60s. Exports in the early years were to Africa, Middle East, and other Asian countries in CKD form, similar to the method used in India. The company did not progress significantly till 1988-89. In 1991-92, it formulated a four-phase international marketing strategy. In the first phase, it planned to establish credibility through entry to European Community (EC) to cover EC countries one by one, using one customer (distributor) per country, with a low-end product and without a brand name. It selected EC as the key market because of tariff preference to India and dumping duties imposed on China, the largest exporter of bicycles. In the second phase, it attempted to create visible credibility in the EC, through upgrading the product from low to low-mid range, explore possibilities of establishing a brand, and selling directly to retailers. Simultaneously, it continued the thrust of the first phase (unbranded) to provide stability. In the third phase, it planned to substantially increase the market share in EC through both strategies
* This section draws on a presentation made by Mr H S Goindi of TI Cycles to students of Post-Graduate Programme at IIM, Ahmedabad in November 1995. VIKALPA VOLUME 28 NO 1 JANUARY - MARCH 2003

designed in the first and second phases with more emphasis on branding backed by manufacturing (mostly assembly) in Europe. In the last phase, TI Cycles was to become a truly international player. The company initiated measures to develop an international mindset and capabilities and achieve the above mentioned strategic goals through overseas exposure, training, and participation in trade fair. It improved the product through technology upgradation, and global sourcing, and set up a dedicated Export Oriented Unit (EOU) of 300,000 units for catering to the volumes anticipated. Also it set up an international subsidiary, Perry Overseas Ltd, Virgin Islands, to manage the operation. The company made export division as a separate profit centre and attached product development to marketing. The exports became a significant part of its business in the mid-90s (Table 2). However, by 199697, increased production costs at home, tariff changes in EC, and currency fluctuations made exports an unsustainable proposition. Exports declined in 199697. The EOU incurred a loss of Rs 1.22 crore.

OPERA TIONS A T AMBA TTUR PLANT OPERATIONS AT AMBATTUR

The company s manufacturing was structured to produce the parts in batches till 1995. Increase in the number of models and the total volume of production led to problems of increased in-process inventory, long manufacturing lead time, inaccurate delivery and poor tractability, and fortification of orders for different brands/models of bicycles. By 1996-97, it had solved those problems by redesigning its manufacturing systems. The shop-floor layout was restructured into five modules: i) Standards, ii) Brazed Specials (SLRs, Juveniles), iii) Home welded (MTB and Kids), iv) Table 2: Domestic and Export Sales (1990-91 1996-97)
(Rs Million) Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 Domestic Sales 850.34 1000.40 1082.40 1246.40 1517.00 1810.56 1836.80 Export Sales 93.48 139.40 287.00 492.00 545.30 549.40 289.46

Source: Company records.

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Exports, and v) Rim. The first four were grouped according to bicycle models having similarities in features, technology of joining the metal frames, and requirements of colour and design changes. The Rim module was a common support module for the rest. The company created a Dispatch module to take care of dispatches of domestic bicycles. A module was expected to be a ownership responsibility centre for buying out components, maintenance, stores of raw materials and intermediate production planning, assembly in batches of 500 cycles, and dispatch to the dispatching module. The company centralized the remaining functions and grouped them under the following departments: Marketing, Sourcing (procurement in modules), Product Development, Maintenance, Quality, Production Engineering, Central Planning, and Personnel.

production people only. An executive described the work culture, till 1995, as easy going. Each one did the task that was assigned to him. The supervisor and managers focused on problems relating to their areas of operations. For example, competition and dealer s complaints were to be addressed by the marketing executives only. Similarly, industrial relation was the concern of HR executives. Quality was the problem of production executives. Hierarchy was respected. Everyone waited for initiatives and instructions to emanate from the higher ups. One of the executives described the culture as risk averse. However, the atmosphere was very informal.

PERFORMANCE TILL 1996-97

In 1995-96, the sales volume (value) in domestic market was 1.7 million (Rs 1810.56 million) and in export market was 3,58,000 (Rs 549.40 million). In 1996-97, the domestic sales volume declined to 1.63 million (Rs 1836.80 million) and the exports declined substantially to Rs 3,00,000 (Rs 289.46 million). The export sales got affected primarily by the devaluation of Chinese currency and the imposition of import duties on Indian bicycles by the EC. However, the exports of components continued to do well. Till 1996-97, the company continued to hold more than 50 per cent of market share in the Specials segment. In 1994-95, the company had incurred a loss of Rs 2.98 crore which reduced to Rs 1.51 crore in 1995-96. In 1996-97, it turned the corner and earned a profit of Rs 3.04 crore. Its domestic operations were profitable throughout with profits increasing from Rs 0.65 crore in 1994-95 to Rs 4.02 crore in 1996-97. The losses from export operations had declined from Rs 3.62 crore in 1994-95 to Rs 2.93 crore in 1995-96. They declined further to Rs 0.98 crore in 1996-97.

WORK CUL TURE CULTURE

After taking over as Vice President in 1995, Ramkumar spent considerable time in understanding the people, the decision-making processes, and work culture through interactions with senior executives and workers and visits to the shop-floor. He shared the performance of the company with executives and introduced a system of sharing, questioning, and provision of answers through team efforts. He also introduced the concept of Saturday meetings where various issues facing the company were openly brainstormed by a cross-functional team of senior executives. This process helped the work culture to change to a significant extent. A senior executive commented: The Saturday reviews were a real help. They opened our eyes to the deteriorating competitiveness and financial performance of the company. We were shocked to know that the company was incurring losses. Earlier, we were working in our own silos and thought that the situation was hunkey dorey. It also brought in a change in our mind set. Earlier, we did not involve ourselves in resolving the issues faced by the other functions. For example, competition and dealer complaints were to be addressed by the marketing executives. Similarly, IR issues were to be tackled by the HR department. For that matter, quality was the concern of

COMPETITIVENESS OF TI CYCLES
The company had established a name and reputation for quality. Its brands Hercules and BSA were recognized across the country. Till the early 70s, being a dealer of Hercules cycles was a symbol of prestige. It lost its exclusivity when competitors from the North entered the industry and built leadership positions on the basis of lower price. The entry of competitors was
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facilitated by the growth of independent parts manufacturers in Ludhiana in particular and Punjab state in general. The new entrants did not have to set up integrated facilities like TI Cycles. They made a few core parts like frames and forks, did the painting, bought complementary parts from independent manufacturers, and prepared the ready-to-assemble kits. They promoted their own brands like Atlas and Avon. At the end of 1996-97, TI Cycles faced competition from Hero Cycles, Atlas Cycles, and Avon Cycles, all located in North India. They competed on price in both Standard, and Special categories. Studies had shown that there was a cost differential of about 10 per cent between TI Cycles and the other key competitors. This was primarily because of the integrated nature of manufacturing and the higher wage costs at TI cycles. The company was considering ways of cutting costs by outsourcing, but the extent of cost reduction needed to make a significant increase in its contributions in Standards, was not likely to materialize soon. Exhibit 3 provides the details of competitors profiles. The sales of various players in the industry in different categories of bicycles were as provided in Table 3. TI Cycles was a leader in the southern region of India closely followed by Hero (Table 4). Population strata-wise, the company was second in towns with a population more than 10 Table 3: Bicycle Industry 1996-97
(Figures in # 000s) Type of Cycles TI Total Bicycles Of these Standards Specials 1605 787 818 317 240 107 149 Hero 4210 3437 773 103 223 165 276 Company Atlas 1996 1685 311 38 60 36 175 Avon 968 745 223 17 59 71 76 Total 8780 6654 2126 475 582 379 675

lakh and third in towns with less than one lakh population and in rural areas (Table 5). Nowhere was it number one.

NEW OPPOR TUNITIES OPPORTUNITIES

Domestic Market Opportunities The bicycle purchase in India was 1 per 100 persons in 1996-97. This compared quite poorly with developed countries like Holland and Japan where the ratio was 1 per 13 persons. In the US, Germany, UK, and France, the ratio was 1 per 20 or 25. In China, it was 1 per 45 persons. The Indian bicycle market had grown from a sales volume of 586 million bicycles in 1986 to 949 million bicycles in 1996-97. Table 6 provides rural, urban, and total domestic market size and total market growth rate for the period 1985-86 to 1996-97. In the year 199697, the North Zone accounted for about 31 per cent, East Zone 26 per cent, and West and South Zones, which were equal in size, the remaining 43 per cent of the total domestic market. The composition of domestic market (Standards vs. Specials) was changing slowly since the 70s. See Table 5: Market Share by Population Strata in 1996-97
Estimated Market Size by Population Stratas Rural Towns (<1 Lakh) 1-10 Lakh 10 Lakh+ Source: Company records. Hero % 50 35 40 40 Atlas % 25 30 20 20 TI% 15 27 35 30

Of Specials
SLRs MTBs Kids Juveniles

Table 6: The Market for Bicycles in India 1985-86 to 1996-97

( 000s) Year 1985-6 1986-7 1987-8 1988-9 1989-0 1990-1 1991-2 1992-3 1993-4 1994-5 1995-6 1996-7 Rural 5050 5120 4900 4550 4750 4804 5900 6450 6400 Urban 1638 1772 1720 1654 1936 2000 2671 3043 3200 All India 5862 6213 6577 6688 6892 6620 6204 6686 6804 8571 9493 9600 Growth (%) 5.6 5.5 1.4 3.4 -3.9 -4.8 4.5 3.3 26.0 10.8 1.1

Source: Company records.

Table 4: Regional Market Shares of Cycles 1996-97

Firm Hero Atlas TI North 45 24 4 East 53 7 22 West 31 36 18 South 39 18 43

Source: Company records.

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Source: Company records.

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Table 7 for an overview. The detailed mix of bicycle types in the Indian market in 1996-97 is given in Table 8. Among durable products, bicycles were owned by 80 per cent of households and were the second most owned durable in 1996. The ownership of bicycles among households (rural and urban) and by income categories is provided in Table 9. The projected number of households in different income groups in urban and rural areas up to 2006-07 is given in Table 10. International Market Opportunities A review of the European Union market by the company management in 1996-97 revealed that the demand for bicycles in EU as a whole as well as in each of the key countries had declined over the last three years. The key countries, accounting for 75 per cent of EU demand, faced falling demand and imports during 1993-94 to 1996-97. Total imports to EU countries dropped by 20 per cent (Exhibit 4). During the sixmonth period (January-December 1996), EUs import from India went down to 3,83,000 from 6,26,000 a year ago, a drop of 40 per cent. The companys volume also went down to 1,71,000 from 365,000 over the same period, a drop of 52 per cent. Further, the companys share of Indian exports to EU fell from 57 per cent to 45 per cent. This was primarily due to its failure to compete on prices. Its early starter lead was neutralized by other domestic competitors. Some key findings of the review of world bicycle market were as follows: The US and Europe were the two largest importers followed by Japan. China was the largest manufacturer and exporter of low cost bikes and was upgrading through Taiwanese technology. The major producers in China were China Bicycle Company, Forever, and Pheonix. Chinese producers with their low production costs were likely to pose a major threat in kids (roughly Table 7: Industry Trends Mix of Standards vs. Specials
(in %)
Mid-80s Industry Standards Specials Total Sales >90 <10 100 TI 75 25 100 Early 90s Industry 90 10 100 TI 60 40 100 Mid-90s Industry 76 24 100 TI 50 50 100

Table 8: Mix of Bicycles in India

(Figures in Lakh) 1994-95 Standards Specials SLRS Kids MTBs Juniors Total 69.1 17.5 5.0 3.2 4.6 4.7 86.6 1995-96 70.2 19.5 4.9 3.7 5.5 5.4 89.7 1996-97 67.5 20.6 4.8 3.8 5.8 6.2 88.1

Source: Company records.

40 % price compared to that of Indian producers), 26 MTB (roughly 60% of Indian price), and standard bikes (roughly 90% of Indian price). Most bicycles preferred in the developed countries were geared and were meant for fun, exercise, etc. (as opposed to their use as workhorse in developing countries). Among the model types, the major ones were ATB/MTB, BMX, Roadster, etc. The newer designs were towards use of lighter materials (special alloys) and of folding type. TI Cycles did not have design and manufacturing capabilities to produce the middle and upper end of bikes required by these markets. The export operation and international thrust helped TI Cycles in acquiring technologies and attitudes to produce international quality products, particularly in the EOU. Specifically, the experience helped in improved learning of welding, assembling of bikes, and painting. Learning of order tracking of a variety of mix of bicycles was another new skill that was developed which triggered the restructuring of the shop-floor. The export supplies/rejects were marketed in the domestic market. While the initial acceptance was better, the customers found the maintenance and the servicing of geared bikes a serious problem. This was because the dealers and their mechanics did not know the product and its servicing requirements. TI cycles learnt to procure high quality components from Japan for assembly into export cycles. For example, it learnt that the best gear systems were designed and manufactured by Shimano of Japan. Export demand was for cycles fitted with Shimano gears.
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Source: Company records.

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Table 9: Bicycle Ownership

Income Group (Rs per Month) Lower (< 2000 per month) Middle (2-6000 per month) Upper (> 6000 per month) Total Source: Company records. Urban Total House% holds Penetration 17.70 24.60 5.40 47.70 40.00 57.00 54.00 Rural Total House% holds Penetration 98.60 25.80 3.00 127.40 39.00 60.00 60.00 Total Total Households 116.30 50.40 8.40 175.10

Table 10: Projection of Households in Income Groups

(in Million) Income Group 1994/95 Lower (<2000 per month) Middle (2-6000 per month) Upper (>6000 per month) Total Source: NCAER Whitebook. 15 23 7 45 Urban Households 2001/02 7 30 15 52 2006/07 2 30 28 60 1994/95 71 40 5 116 Rural Households 2001/02 49 68 11 128 2006/07 34 89 16 139

NEW THREA T: COMPETITION FROM THREAT MOTORIZED TWO-WHEELERS

The cycle industry faced competition from the moped category of motorized two-wheelers. These were mostly of 50 cc engine capacity and priced around 2 to 3 times the price of top end of bicycles. Kinetic Engineering in the West, Luna, and Hero Majestic in the North, and TVS in the South were the key competitors. Kinetic and Hero had over 60 per cent of the moped market till early 80s. TVS emerged as a strong contender in mid-80s. Simultaneously, the south market penetration increased. With the introduction of 100 cc bikes and scooters by Kinetic and Hero, the moped market was led by TVS in late 80s/early 90s. Enfield, a Southern India based manufacturer of Bullet motor cycles, decided to enter the moped market by introducing and pricing a product at Rs 2,500 in late 80s. The product with the brand name Mofa was a gearless moped, without frills, which gave a mileage of 100 km to a litre of petrol. Bicycles cost Rs 1000-1100. Mofa failed to take off and was withdrawn. Bicycle prices grew but remained around Rs 2000 plus. Moped prices had risen to Rs 10,000 plus by 1997. A new development in early 90s was the introduction of a 50 cc scooter (Scooterette) by Bajaj, the leader in the Scooter category of two-wheelers. Later, TVS and Kinetic also followed with similar products. This category had become quite popular with children in high-income households. Mopeds and second hand scooters/motor cycles were becoming
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popular as mode of transport for mid/lower middle income households.

BICYCLE USER
Research by TI Cycles had revealed that the Standard and Special bicycles had distinct user groups. The Standard bicycle was a functional, lower priced, and semi-urban or rural market bicycle. It was used as a workhorse to travel to workplace or carry loads (like milk cans by milk vendors). The user typically belonged to 20 years plus age, lower to lower-middle income group, blue collar/farmer/semi-skilled labour, belonging to Social Economic Classification (SEC) C or D. The brands favoured were Hercules Popular (TI), Hero Royal (Hero), Atlas Goldline (Atlas), and Avon. Invariably, the user purchased the bicycle on his own from the dealers. The Special bicycles were aesthetically (looks and design) superior, trendy, fetched higher price, and used primarily for recreational purposes. The user group consisted of students, both boys and girls, of 6 to 16 years of age, belonging to mid to upper income groups in SEC A and B. The MTBs which were introduced much later than SLRs had caught the fancy of boys and constituted the premium range of Specials. The SLR users were mostly girls. Leading brands in Specials were BSA SLR (TI), BSA Mach (TI), Hero Impact (Hero), and Rockshock (TI). The parents or elder relatives of the users bought these bicycles for the users. A TI marketing executive mentioned that the pestering

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power of the children played a key role in influencing the purchase decision. The youth segment looked for something different every time. Cycle manufacturers differentiated their offerings by unconventional brand names like devil, rebel, etc., multiple colour schemes, designs of handles, tyres, carriers, stand, and overall shape of the cycle and tried to give my bike is different image. Company research had shown that the youth segment was expected to grow by more than 20,000 per month and it constituted about 35 per cent of the total cycle market. TI Cycles led the segment with 50 per cent market share followed by Hero Cycles (35%) and Atlas (10%). Atlas was expected to take its market share from 10 per cent to 20 per cent of the segment in the near future.

THE TASK AHEAD

Ramkumar and Paul had to think through the nature

and size of opportunities available to TI Cycles. They were aware of the lack of technical competencies in the company to cater to the export market. Growth opportunities existed in penetrating the different regions, in extending the coverage to smaller towns, and in expanding the product ranges. They had concluded that the geared bikes were the major chunk of the market in the developed countries. However, the introduction of geared bikes as export surplus had not succeeded at both the consumer and the trade level in India. In addition, the SLR and the MTB range had reached a stage of almost no growth in the market. The key issue of concern for them was: Having turned around the unit from a lossmaking one to a profit-making one in the last two years, how do we chart out a path for sustained and profitable growth, to take TI Cycles to number two position in the near future and number one in the long term?

Exhibit 1: Creating SLR Category*

TI cycles introduced the Sports Light Roadster (SLR) category of bicycles through the introduction of BSA Aristocrat in 196970. The Aristocrat was positioned as a sporty bike. It was designed to be light, flashy, and colourful to attract the children. The bicycle had both gents and ladies models. The launch used print advertising to support the image. Though advertising resulted in increased brand awareness, the initial high sales growth could not be sustained. Two reasons were identified for this trend: higher price and flimsy and non-durable perception of the product. In 1984, the company revamped the product with a view to address the two problems. It effected minor product changes which led to increase in contributions by 25 per cent and better perception of the product. This was supported by renaming the brand as BSA SLR and was backed by the slogan, Built Like a Champion to position it appropriately in the minds of consumers. The company featured Vijay Amritraj, one of the best tennis players of India and Kapil Dev, a leading cricketer of the time, in the advertisements to communicate the position of Champion and its durability. It also used the emerging TV medium to promote the brand. The BSA SLR volumes touched 102,000 in 1986. Later, in 1988, the company expanded SLR range along with non-personality-based advertising and communication. The slogan was changed to BSA SLR: Moves Like a Champion. The sales reached 2,00,000 units in 1988. It took another initiative in 1988 by opening a BSA shop in Cochin to explore a new channel. Subsequently, it introduced a lower priced SLR, branded as Hercules Pilot, to fight competition. It also sponsored a popular TV Quiz programme. All these efforts led to a sale of 25,000 Hercules Pilot and 2,50,000 BSA SLRs in 1989. The growth in the category did not go unnoticed by competitors. Atlas, Hero, Road Master Industries (RMI), and Avon introduced lower priced look alike versions in mid-1984-85. These were followed by new competitive offerings in 1988: Royal Hunter from Gujarat Cycles (associate of Hero) and Atlas Funfleet range from Atlas. These later versions were not particularly successful and were withdrawn soon. TI Cycles continued to dominate the SLR category with more than 50 per cent share, though the market growth had gone down significantly.

The new features added to BSA SLR over the years were:
1987 1988 1989 New chain cover - New levers - Black plastic pedals Chrome-plated carrier - Centre pull brakes - New carrier Centre stand - Opening of BSA shop Sticker redesign

* This section draws on a case by Mr S Ramachandar, Consultant to TI Cycles for a class at IIM, Ahmedabad.

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Exhibit 2: Developing All Terrain Bikes*

Hero introduced All Terrain Bikes (ATBs) in 1989. ATBs were bicycles of distinctive design with sturdy and tough looks, straight handlebars, and thick and deep treaded tyres. Atlas Cycles introduced Rebel in this category. TI cycles followed with Street Cat in 1990. According to the company management, the late entry was far more determined and well thought-out. Within three months of its launch, it sold 25,000 bicycles. This was followed by Hercules MTB in the price range of Rs 1600 to Rs 1700. This increased its share in ATBs as well as helped the category grow. In late 1995, consumer research by the company demonstrated that an ATB user was typically an urban teenager, westernized, 12 to 15 years of age, very knowledgeable about the bike, and its features. The research also showed that the decision-maker was pre-sold (before entering the outlet) on brand and was a heavy TV viewer. His leisure activities were sports and music. Also, peer group acceptance was an important influence on choice of brand. The consumer research further found that the current options in the range had gaps in terms of desirable attributes of (i) easy handling of bike, (ii) looks, and (iii) colours. TI Cycles developed a two-pronged strategy to design a suitable offer: product and communications. The final offer, branded as Street Cat, had the following product and communication. The final product, chosen after testing prototypes, consisted of: thinner tyres unique crackle finishes with a range of colours powder-coated handle bar reflectors in spokes (of wheels) attractive stickers. The communication strategy, developed on the basis of consumer research and managerial insight, was as follows: Promise Support Brand name Tone Manner A fashionable bike Range of colours, product looks, and BSA brand BSA Streetcat Fun, a dash of wildness Urban setting Music the executional idiom Execution Media mix Boom Boom Shaka Laka TV sports, music-based channels Print sports, youth magazines Event sponsorship youth-oriented

The launch of Street Cat in 1995 resulted in: excellent launch response bikes sold at premium price built the segment as well as the TI Cycles share in the segment introduced the dimension of fashion in ATB segment distinct from the dimension of tough, the traditional platform of ATBs.
* This section is based on a presentation by Mr Suresh Kumar from TI Cycles to students of Post-Graduate Programme of IIM, Ahmedabad in 1995.

Exhibit 3: Profile of Competitors

Hero Cycles Mr Brijmohan Lal Munjal who set up Hero Cycles in 1951 started as a small time trader of cycle parts and supplier of frames to Atlas Cycles. The company became the largest player in the bicycle industry over the years and was supported by over 100 ancillary units whose production was dedicated to Hero Cycles requirements. Initially, the quality of Hero brand of cycles was poorer than that of TI Cycles. The cycles of TI Cycles lasted a lifetime while the cycles of Hero lasted for three years. However, the Hero brand of cycles were rugged and could take extra loads of milk cans and vegetable baskets. The prices were lower than that of TI brand of cycles. Their load carrying capacity made them the preferred bike in the rural and semi-urban areas. Hero Cycles strengthened its position consistently by investing in quality improvements, brand building, and innovations in painting. With the help of a closely-knit networ k of cycle par ts manufacturers, it emerged as the largest producer of cycles in the world. It introduced innovations in painting and brought out attractively painted bikes. In 1989, Hero Cycles launched Hero Ranger at a price of Rs 800 to satisfy a need that TI Cycles had overlooked, i.e., cycles for peddling on rigid terrain. It had also introduced fitness bikes under the brand name Hero Allegro. Hero Cycles further built its market position by diversifying into moped and motor cycle businesses with the help of collaborations from Germany and Japan. Hero Cycles was a cost leader in the industry. It had four regional sales managers and about 20 sales representatives, roughly one per state, all operating out of Ludhiana. The company had limited design organization but had acquired the capabilities of faster time to market. It had the strongest dealer organization with excellent relations between the head of the company and the dealers. Atlas Cycles Ltd. Mr Janaki Das Kapoor, the promotor of Atlas Cycles Limited, started by manufacturing bicycle saddles in 1950. In 1951, he set up the Atlas Cycles Industries Ltd. to produce and market complete cycles. Initially, he was granted a license to produce 1,00,000 bicycles a year. The unit was initially located at Sonipet in Haryana. Later Mr Kapoor set up another unit in Malanpur in Madhya Pradesh. He also set up a steel tube manufacturing plant at Gurgaon and a component manufacturing division at Sahibabad in Uttar Pradesh and at Ludhiana in Punjab. Atlas Cycles exported to 40 countries and was the only company with an R&D wing recognized by the government. It introduced Rebel in the MTB category to compete with Hero Cycles. It also introduced a range of fitness equipments like exercise bicycles, walkers, and steppers. It produced more than 25,00,000 cycles per year. Standard black cycle constituted 80 per cent of the production. The company had plans to revamp its black cycle segment and launch a new range. Avon Cycles Avon Cycles was also located in Ludhiana. The major focus of Avon Cycles was on standards, though market share-wise it was third in kids segment. The company sold through distribution and had hardly any marketing and product design organization.

VIKALPA VOLUME 28 NO 1 JANUARY - MARCH 2003

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Exhibit 4: Demand and Imports for Bicycles in Europe

(Million Units) Countries France - Demand - Imports Germany - Demand - Imports UK - Demand - Imports Scandinavia - Demand - Imports Total - Demand - Imports Source: Company records. 12.42 7.50 11.90 7.50 11.13 7.10 10.45 5.70 1.12 1.00 1.20 1.10 1.25 1.00 0.95 0.80 (15) (20) 2.30 1.30 2.20 1.60 2.08 1.70 2.10 1.80 (9) 15 5.60 2.40 5.40 2.30 5.00 2.10 4.60 1.90 (18) (21) 3.40 2.80 3.10 2.50 2.80 2.30 2.80 1.50 (18) (46) 1993-94 1994-95 1995-96 1996-97 Growth Rate (%)

Mukund R Dixit is Professor in the Business Policy Area of Indian Institute of Management, Ahmedabad. A Ph.D. from IIT, Kanpur, he has specialized in strategic management and has published cases and papers in this field. His research interests include public policy and corporate strategy, competition and competitive advantage, and innovations in management. email: dixit@iimahd.ernet.in

Abhinandan K Jain is Professor in the Marketing Area of Indian Institute of Management, Ahmedabad. A .ellow from IIMA, his specialization is in the field of quantitative models in marketing, strategic marketing, and international marketing. His publications include a book on marketing management, several articles on media planning and case method, and a large number of cases. email: akjain@iimahd.ernet.in

I am more of a sponge than an inventor. I absorb ideas from every source. My principal business is giving commercial value to the brilliant but misdirected ideas of others. Thomas Edison

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