A book-reading
session is not what you'd expect from a CEO when his company is in the
doldrums. Sometime in 2008, when Bajaj was on a sticky wicket, CEO Rajiv Bajaj,
then 41, addressed his top
generals, a copy of Jack Trout's Differentiate or Die in his hands. The young
Bajaj read out passages for a good 90 minutes, expounding the key messages
gleaned, why Bajaj Auto was floundering, and how some of Trout's theories could
come in handy.
Finally, as Bajaj wrapped up the last chapter, Tom Ishikawa, a Japanese
executive who had joined Bajaj Auto from Yamaha, said: "Rajiv San, all you
have said is ok, but this is just a book." Bajaj shot back: "Tom San,
Yamaha is such a big name. Even then, why isn't it making money?"
Five years later, Bajaj still recalls the incident. The point being at that
time, he had also been grappling with a question: the Japanese (Sony), or
Korean (LG) or Taiwanese companies, which had mastered technology, quality,
efficiency and productivity, weren't making money. Why? It was that cold splash
of market reality, which ultimately led Bajaj to Jack Trout, the 76-year-old
author and management guru.
Since then, a fairly intense guru-shishya relationship between Bajaj and Trout
has helped the former find the answers and transformed the way Bajaj runs the
Rs 20,973 crore company. Under Trout's influence, Bajaj Auto has adopted a
successful brand-led growth strategy and morphed into a marketing company;
Bajaj no longer sees it as an auto company.
Most products are sharply differentiated and enjoy better profitability.
"Our operating profit margins stand at 22%, while that of the market
leader stands at 10%, and they have nearly double our volumes," says
Bajaj. "If I had their volumes, I would be at 25-26% profit margins."
In the five years since Bajaj met Trout, Bajaj Auto's net profit has grown almost
five-fold to Rs 3,044 crore.
Though Bajaj runs a very tight ship with variable costs on a leash and fixed
and employee costs a shade under 8 per cent of sales, he credits Trout's
contribution in shaping Bajaj Auto's brand-led strategy as the reason for its
higher profitability. "We didn't become better in the kitchen, we serve
better in the restaurant," says Bajaj. Adds Rajiv Memani, Country Managing
Partner, EY India: "Under Rajiv's leadership, Bajaj Auto has aligned well
strategically. He is very clear, he is chasing profitability, not blind market
share."
Corporate Dossier met up with Bajaj and Trout in Delhi last month where Bajaj
and his marketing team spent a few hours sharpening the positioning and
communication strategies for the new range of Discover motorcycles that the
company is in the process of launching. The guru was visibly pleased with his
shishya. "After years of working all over the globe, I
can safely say that Rajiv is my best student," says Trout. "He has
read my material so carefully. Sometimes he quotes from my books, and I ask:
Did I say that?"
How the penny dropped
Three years after Rajiv Bajaj took charge, it was all smooth sailing till the
tide turned at Bajaj Auto. Its newest launch XCD, a 125cc bike targeted at the
commuter segment, bombed, sales of the Discover dipped and overall volumes
plunged. The crisis led Bajaj, a seeker and radical self improver, to Trout's
books.
After weeks of introspection, Bajaj conceded his company didn't have a coherent
strategy. And thus began Bajaj's deep dive into understanding 'strategy'. But
Bajaj was quickly disillusioned with modern management science as the failure
rate of new products still exceeded 90%. He turned to unlikely places - yoga,
homeopathy and even philosophers, like Seneca and Confucius - to glean
management lessons. "The penny dropped," says Bajaj, when he was
reading Trout's and Steve Rivkin's. Differentiate or Die. "I learnt almost
very late that people don't actually buy products, they buy brands. If you take
the brand out of the equation, you reduce everything to the product
level," says Bajaj. "I didn't understand the true
meaning of the word 'brand' till I read his books - and later, met Mr
Trout."
Ever since then, Bajaj has been relentlessly drilling Trout's insights into the
DNA of the company. Take sports bike Pulsar, for instance. Its attributes are
clear: it's big, fast, expensive, powerful, and its strong point is definitely
not mileage. So these attributes are made explicitly clear not only to the consumer
but also to internal functions, like R&D, marketing, sales etc.
In internal meetings at a large meeting room adjacent to his office, Bajaj asks
his top team to imagine that a Pulsar is placed in the centre of the large oval
table. All discussion always flows within the boundaries of Pulsar attributes
and brand image. Bajaj often rejects perfectly good designs and variant
proposals because they aren't true to the Pulsar attributes. "Great brands
have to be true to their brand promise," says Bajaj.
Bajaj's competitive edge has been its consistent focusing on 'brands',
'positioning' and creating 'exciting segments' for two-wheeler
enthusiasts," agrees Sameer Lumba, Managing Director, JM Financial
Institutional Securities. Like a true student, Bajaj tests Trout's teachings in
different situations. When flagship brand Pulsar - it has 47% market share in
the sports bike category - started drawing competition, Bajaj implemented
another idea from Trout and Al Reis' book, Marketing Warfare. In the marketing
tome, the authors advise creating a real and perceptual benefit into the
product while defending leadership. They cite the example of Gillette defending
market share by adding an extra blade to the razor, and then, another. Bajaj
adapted the insight, launching Pulsar 200 NS with three spark plugs for better
performance. Competitors have only one or two spark plugs.
It's a similar story in global markets, which now account for 40% of Bajaj
Auto's sales. In Indonesia, the company was struggling with a market share of
only 2% even six years after entering the country. Japanese heavyweights, Honda
and Yamaha, and cheap Chinese brands dominate the market.
Bajaj tied-up with Kawasaki, the Japanese manufacturer that focused on the
400cc plus category. It also targeted the value segment by selling the Pulsar
as a Kawasaki Bajaj. "In Indonesia, we had to find out, as Mr Trout says,
a way to supply the customer with a reason to buy. We positioned ourselves as a
motorcycle specialist with a specific technology (triple spark) vis-a-vis the
Japanese , who offered a buffet of twowheelers," says Bajaj. "From
our end, we solved the differentiation problem and from their side (Kawasaki),
we solved the consumer access problem. So that becomes the strategy, otherwise,
it is impossible to crack the market where we are 50 years late."
But is running a business as simple as merely copying lessons from management
books? Sure, Trout and his books did have an influence on Bajaj, but four
things set him apart - his ability to synthesize and figure out what works for
Bajaj Auto; absolute conviction in driving ideas and actions once he has tested
them; a laser-sharp focus on motorcycles.
Lastly, credit must go to his father Rahul Bajaj for rotating him through
functions. In his nearly 23 years at the company, Bajaj had spent five years
each at manufacturing, engineering and marketing before taking the top job in
April 2005.
It's interesting that Bajaj chose to work with Trout because he takes
everything with a pinch of salt and even McKinsey reports gather dust in his
drawers. So what was it about Trout that appealed to Bajaj? "Mr Trout's
books give principles upon which to reflect. Unfortunately, there is no first
law of management, like the first law of thermodynamics.... sometimes, there
are seven new hats or seven habits or blue ocean or bottom of the pyramid. But
you can reflect on the principles he propounds for weeks, months," says
Bajaj.
One of Bajaj's most controversial decisions has been to exit and stay out of
scooters, a category that's now growing at 20 per cent, and more importantly,
was his father Rahul Bajaj's heritage. "Great brands are built on the
foundation of sacrifices," says Rajiv Bajaj. "Making more scooters
doesn't mean making more money. We are a specialist motorcycle company; we
won't venture out of that easily." Trout backs Bajaj's bold call to
stay out of scooters. "The scooter business is a bit of a jungle with
amazingly tough brands and pricing pressure. I think Rajiv made the right call
there," he says.
And where does Trout fit in Bajaj's fourwheeler strategy? According to the CEO,
it's another ploy to defend leadership in the three-wheeler category where they
are global leaders. His logic: If we can add a second or third spark plug to
Pulsar, why can't we add another wheel to the three-wheeler, thereby increasing
comfort, safety and also giving consumers a certain feeling of prestige.
"The best three-wheeler is a four-wheeler," he says. "We want to
create a new category with Bajaj RE. Those who create categories, create
long-term
businesses," says Bajaj.
Trout in choppy waters
Given the amount of ground the guru-shishya duo has covered together,
surprisingly, there are two sides to the story of how they met. Trout remembers
meeting Bajaj after a talk in Mumbai sometime in 2008. Bajaj told him that he
wanted him to work with his team. Bajaj, on the other hand, says he had written
several emails to Trout before the meeting, without any response. Trout doesn't
remember the emails and says he hadn't even heard about the company until then.
Five years later, the two enjoy a relationship that's long crossed the confines
of a consultant-CEO commercial engagement. They share a strong personal bond.
Bajaj also ensures his team members regularly get to spend enough time with
Trout. Earlier, Trout would spend 8-10 days a year with Bajaj and his managers;
now it's down to once every quarter.
Despite the fruitful partnership, the two are yet to crack a vexing problem -
managing Bajaj, the family brand. It has been extended into too many products,
says Trout. He even met with the Bajaj board and family members advising them
to rebrand all other Bajaj businesses.
"Gentlemen, this is a mistake, I
told them. But they wouldn't let go," recalls Trout. The more successful
the motorcycle brand gets, the more Bajaj will become a motorcycle brand. Why
do you want a motorcycle brand on your electrical appliances or insurance
products or sugar?"
Bajaj too is vocal about his views on this. "If I tell you I want to show
you a Bajaj product outside, you wouldn't know what I would show you — a hair
oil, a mixer grinder or a financial product." But Bajaj enjoys a good
challenge. "Einstein said that he derived less satisfaction from E=MC2
than from thinking about the problem," he says. "Mr Trout's biggest
contribution would be that he has taught us how to think through
problems."
Trout knows Bajaj and his brash ways all too well. He recently presented Bajaj
with a signed copy of his book Big Brand, Big Trouble. This is what he wrote as
he signed: "Rajiv, make sure to stay out of trouble."
