Monday, December 6, 2010

Hero Group to use Honda brand till 2014 but on conditions

The successful partnership of 25 years between Delhi based Hero group and the Japanese company Honda Motor will finally come to an end but there has been several speculations over the fate of Hero group now that it will have go to the market alone o its brand with the strong association of motorcycle brand with Honda.

Now it has been reported in the business daily Business Standard that Hero Group is believed to have won rights to use the Honda brand till 2014-end. The report mentions that as the final draft of separation between the Hero Group and Honda Motor Company gets readied, concerns are being raised on the Indian company's ability to promote and sell its indigenous products in the long term, while managing the added burden of royalty payouts to the Japanese company.

The report stated that the Munjals-promoted Hero Group is believed to have won rights to use the Honda brand, considered to be one of the most trusted automotive brands in the world, on its products till the end of the term of the technical agreement, in 2014. In return, say sources, Honda has asked Hero to refrain from any technical changes required for giving routine facelifts to the products, as they will not have been approved by the Japanese company.

There are many concerns over this development as it might curb the any attempts for releasing refresh products or any new models. The report states that Hero may even be restricted on introduction of new products during the next four years under the joint brand of Hero Honda, although a few new products had been agreed upon for launch under the joint brand. However, Hero could launch products under its own brand. The report quoted sources as saying "Now that Honda has a very strong brand following in the country, it does not want to disturb that loyalty. The focus will now shift to its subsidiary, Honda Motorcycle and Scooter India. It will become imperative for Hero to avoid making changes to its bikes, as Honda will not take any responsibility.’’

According to the report, two of Hero Honda's biggest selling brands, Splendor and Passion, make up about 70 per cent of the company's sales. Marketing experts say the two brands are strong enough to maintain demand in the immediate future. However, Hero Honda, which is known to give timely face-lifts to these two products to maintain consumer interest, may be restricted on altering their design and specification after it signs the share purchase deed with Honda. Till October this year, Hero Honda and HMSI collectively held 57 per cent share of the domestic two-wheeler market, with Hero Honda leading in the bikes segment (60 per cent share) and Honda Motorcycle and Scooter India in the scooter segment (50 per cent share), according to Siam data.

It was also mentioned that while Hero Honda and HMSI had agreed to avoid cannibalisation by not launching products in the same segments, HMSI broke that pact in 2005 when it launched its 150cc bike, the Unicorn, pitted against Hero Honda's decade-old CBZ. Since then, HMSI has added five motorcycles, including the stylish 110cc CBF Twister to match the Splendor, launched early this year.

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