Riding on rough terrain

Piaggio has returned to India with Vespa, a scooter priced at Rs 66,666 — a price tag that is approximately 30 per cent more than Honda Activa, the largest selling scooter in India. Will Piaggio be successful in creating a market for premium scooters in India? Indeed, is it possible to market the utilitarian scooter as a lifestyle product, especially to the price-sensitive consumers in India?

V G RAMAKRISHNAN
Managing Director, South Asia,
Frost & Sullivan
The revival of the scooter segment in India over the last five years is seen as a miracle. The onslaught of new motorcycle models and the rapid change in consumer preference drove the scooter segment to near demise. Honda single-handedly revived the scooters market through its gearless offering. The scooter segment has grown by an impressive 22.3 per cent during April to October 2012 over the same period in 2011. In the same period the motorcycle market has grown by an unimpressive 0.3 per cent. Is this an indication that the scooter segment is likely to regain its past glory in the two-wheeler space? Does the increase in the contribution of this segment from 18.0 per cent in 2011 to the current 21.1 per cent an indication of the things to come? Finally, is it possible to create a premium scooter segment in India that can further grow this market?

 

Piaggio, the latest entrant in the Indian scooters market, has launched its maiden offering Vespa LX125 at a price upwards of Rs 66,000. Developing a market for premium scooters will hinge on many issues but understanding three areas will help manufacturers in crystal ball gazing. These are: understanding the ‘customer’ and his needs, ‘infrastructure’ and ‘product’. Comparison with premium motorcycles is inevitable but here it is necessary to reveal some insights on the similarity and divergence of issues and how some of these trends could impact the evolution of premium scooters segment.

The customer: Rising income levels among the middle- class consumers, exposure to new products and brands, increasing spending on lifestyle products—all point to a shift towards premium products. These factors can favour the development of a premium scooter segment. Some of these factors indeed helped the growth of the premium motorcycle market. Better access to funding has also played a major role in helping the consumer move up the ladder.

Women comprise a big chunk of the scooter consumer base; so ease of use, lower weight and ease of maneuverability are the key attractions for consumers in this segment. Therefore, a premium segment can only emerge on advanced features and enhanced technology rather than on power. That said, the scooter segment will always remain vulnerable with customers graduating to other modes of transport as they progress in age, in their career and their lifestyle. The customer dynamics in the segment indicates a need to attract first time riders into the segment—that’s what will keep the segment growing.

Infrastructure: Between the time when the premium motorcycle market evolved and now, there has been a significant improvement in the transportation infrastructure. Cities across the country have acquired or are in the process of acquiring the metro and mono rail projects. Metros are modern and efficient, they offer good user experience and are reliable. It offers an alternative to two-wheeler owners, particularly to working women and college students. Some of the cities that are in the process of acquiring metros—such as Chennai, Hyderabad, Bangalore and Ahmedabad—have a significant two-wheeler population. The changing mobility patterns of customers can have an impact on the two-wheeler market in general and the scooter segment in particular. In fact, this can come in the way of the evolution of a premium segment that can achieve reasonable volumes similar to what Bajaj’s Pulsar has achieved in the motorcycle space.

Product: The Pulsar, the most successful (volume sales and market presence) premium motorcycle so far in the market, offered things to the customer that were not available in other bikes, justifying its premium pricing. Power, unique styling and product features clearly helped the product achieve customer acceptance and sales. For premium scooters to evolve, the products will have to offer unique features, technology and styling without adding significant weight or bulkiness to the product or compromise on the ease of use. The confluence of these key factors might help premium scooters to evolve as the next urban niche opportunity.

ASHWANI SINGLA
MD & Chief Executive,
South Asia, Penn Schoen Berland
One has to look at the evolution of a market to understand if a product will fail or succeed. And so the first question one needs to answer is whether vehicles are a mode of transportation or do they serve any recreational purpose? Higher disposable income has contributed to a shift towards the latter. For Vespa, Piaggio will target men and women in SEC A. Vespa will not be the next purchase of a two-wheeler owner. In fact, the prospective buyers own one car or more already and now wish to buy the stylish two-wheeler for its retro look and some snob value. Economic and social environment in India will be instrumental in positioning Vespa as a lifestyle product successfully. And if this materialises in India, it will be yet another example of how vehicles are more of an extension of the owner’s personality. Ambassador may not be the best car to own. Still a lot of people buy it for a certain style statement.

Vespa will predominantly emerge as a weekend vehicle. And so it will be important to retain its positioning as an iconic product. Today, the need for mobility is being replaced by the desire to make a style statement. For instance, Harley Davidson has retained its cult status over the years by building a distinct brand image, which is all about ‘adventure’, ‘camaraderie’ and ‘freedom’. It will be interesting to see how the company will tell Vespa’s story in India. Iconic brands do not always need icons from film and entertainment to support them. Benetton is a great example. At the same time, brands like Tag Heuer and Omega have chosen to ride the fortunes of their brand ambassadors. The onus on brand managers at Piaggio will be not to allow brand dilution.

For obvious reasons, initially Vespa will not be a volume bet for the top bosses of Piaggio who are not aiming to become India’s largest two-wheeler manufacturer unlike a Hero MotoCorp. For them it will be about lapping up a share of a niche market—namely, premium scooters. The affordability factor plays a key role in determining whether a niche player can book substantial profits. Local manufacturing will work in favour of the company by saving on high duty pay-outs. Buyers will have no doubt on the quality of the product as long as it is being manufactured in a Piaggio factory.

Every great product must have a certain level of excellence and Vespa has it. That is why international brands demand a premium.