BUSINESS 2.0:

Upselling India

Hero Honda became the largest motorbike manufacturer on the subcontinent by offering consumers better rides to match their bulging wallets.

By Andrew Tilin, Business 2.0 Magazine

(Business 2.0 Magazine) -- As security men struggle to hold back the swarms of paparazzi, the stage in New Delhi rotates to reveal Hrithik Roshan - the Jude Law of Bollywood - standing astride one of Hero Honda's Karizma motorcycles.

The 223cc bike is small by Western standards, but in a country where an upper-middle-class household might earn 200,000 rupees (about $4,300) a year, such motorbikes make up 80 percent of all personal transportation sales. And in India's brutally competitive market, Hero Honda sells more of them than anyone else.

While hiring movie stars like Roshan to work as celebrity pitchmen doesn't hurt, the true secret behind Hero Honda's success lies in the company's talent for creating upscale motorbikes that millions of increasingly affluent Indians aspire to own.

Founded in 1984 as a joint venture between Indian-owned Hero Cycles and Japan's Honda Motor (Charts), Delhi-based Hero Honda has grown its sales 730 percent in the past eight years, to $1.9 billion in 2006, and the company now commands a market share of nearly 50 percent.

Hero Honda doesn't sell the cheapest machines on the market; instead, the company's bikes command a premium because buyers believe they offer better value for each hard-earned rupee.

Prosperity has brought new wealth to millions of Indian households, so consumers now want more than just an affordable price. They're also eager to buy products with superior style and performance - an important lesson for anyone hoping to do business in India or the emerging middle-class economies of China, Russia, and Brazil.

Here are three techniques that Hero Honda uses to sex up sales of India's workhorse form of transportation.

Put Quality First

Inside Hero Honda's spotless Indian plants, white-suited workers produce 13,000 motorcycles a day. Half of a Hero Honda factory worker's wage is based on performance factors such as productivity and quality, and top employees enjoy the most generous compensation in the industry.

The extra effort translates into a better-made product, and customers notice the difference. "Hero Honda doesn't just deliver good quality, it delivers consistently good quality," says Pradeep Saxena of Delhi-based market research firm TNS Automotive India. "The company's engines are always considered smooth."

Keep the Improvements Coming

Hero's Indian management uses Honda's vast parts bin to exploit the best technology its Japanese partner has to offer. Just a year and a half ago, $900 100cc Passion Plus bikes were among Hero Honda's top-selling models.

Now, for a price about 2 percent higher, the new 125cc Super Splendor offers a self-starter and better acceleration, and there are signs that it's eating into the Passion's sales. Hero also added fuel injection to the 125cc motors installed in the company's $1,100 Glamour models this year; fuel injection is common in cars, of course, but this is the first time the technology has been offered on such a small motor.

Deliver on the Image

Delhi's Himgiri Hero Honda, one of India's top dealerships, caters to consumers who are eager to see how far their new wealth can take them. "The performance is excellent, and I know it's going to be totally reliable," explains Delhi insurance salesman Umesh Mathur as he signs the papers to purchase a new bike. "It's everything I could want in a motorcycle."

Hero has also opened dealerships aimed specifically at female professionals. The new "Just4her" showrooms are painted in pastels and furnished with upholstered couches.

Andrew Tilin is a writer in Oakland, Calif. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.