TI cycle case analysis
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TI CYCLES: NEW PRODUCT STRATEGY
TI Cycles was established by the Murugappa Group in the year 1949, in collaboration with Tube Investments, UK. The first Hercules bicycle rolled out in 1951. Three more brands were added to the portfolio – Phillips in 1959, BSA in 1964 and Montra in 2011. Today, TI Cycles is the leader in the ‘specials’ segment. It has a network of around 1,500 primary dealers and 10,000 secondary dealers. TI Cycles has the capacity to manufacture 4 million cycles a year at 3 plants across India – Chennai in the South, Nasik in the West and Noida in the North. This is supported by 4 zonal offices and 4 warehouses across the country. The first MTB, the first geared bike, the first Shox model, the first girls’ bike, the first kids’ bike, the first light roadster and the first carbon frame bike were all introduced by TI Cycles. TI Cycles has introduced BSA Hercules exclusive stores, which have revolutionised the bicycle outlet in India. A one-stop premium shop for all bicycling and fitness requirements. Living up to its dynamic vision of going beyond just bicycles, TI Cycles has also made a foray into Fitness and Infants under the brands of BSA Workouts and BSA Toddlers respectively. Competitors of TI Cycles:
TI cycle faced competition both in the domestic and the international market. In the domestic market the main competitors were Hero, Atlas and Avon. Internationally it faced competition from the Chinese market due to their low cost production. The sales of various players in the industry in different categories of bicycles in 1996-1997 (Figures in # 000s)
The company faced a number of issues through the years.
Stagnant sales and increased competition in the Standard and Special bicycles. Its competitor Hero Cycles became the largest producer of low cost, value for money ‘Standard’ bicycles. In smaller towns with a population of less than one lakh, the company had a partial presence. Dealers had lost interest in selling the ‘Standard’ category of TI cycles. In the new product development, manufacturing segment was not involved at the product design stage In 1996-97, increased production costs at home, tariff changes in European Community (EC), and currency fluctuations made exports an unsustainable proposition. Exports declined in 1996-97. The Export Oriented Unit (EOU) incurred a loss of Rs 1.22 crore. The company had a risk averse culture
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 The company lost its exclusivity when competitors from the North entered the industry and built leadership positions on the basis of lower price. 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. There was a cost differential of about 10 per cent between TI Cycles and the other key competitors. This was primarily because of the company’s integrated nature of manufacturing and the higher wage costs at TI cycles. The company’s 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. Chinese producers with their low production costs became the largest manufacturer and exporter of low cost bikes China likely to pose a major threat in ‘kids’ (roughly 40 % price compared to that of Indian producers), 26” MTB (roughly 60% of Indian price), and standard bikes (roughly 90% of Indian price). TI Cycles did not have design and manufacturing capabilities to produce the middle and upper end of bikes required by the developed country markets. Customers found the maintenance and the servicing of geared bikes a serious problem. This was because of the gap in the company’s distribution network, the dealers and their mechanics did not know the product and its servicing requirements. The cycle industry faced competition from the moped category of motorized two-wheelers. SLR and the MTB range of cycles had reached a stage of almost no growth in the market SWOT ANALYSIS
New markets in India and around the world
Extending the coverage to smaller towns through lower cost bicycles 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. Entry into market where Bicycles are the substitute product
Competition from the moped category of motorized two-wheelers Domestic and international (China,Tiawan) competitors entering the market Shift of demand for higher priced to lower priced bicycles.
Unsure trends in the bicycle industry.
PORTER’S FIVE FORCE MODEL APPLICATION
Bargaining power of Suppliers:
No threats from the suppliers as most of the parts were manufactured by the company itself. TI cycle only procured high quality components from Japan for export cycles. Mostly for the other players in the industry the bargaining power of the suppliers is high because they are dependent on them for the critical parts.
Bargaining power of Buyers:
The power of buyers was relatively high. As the buyers have multiple choices in the market, with little or no difference between brands they tend get choosy. Threat of New Entrants: Over all the industry is growing so there is strong threat of new players particularly form China and Taiwan with low priced cycles. It is not very difficult to enter the business in India. Threat of Substitute Products:
There was threat from the moped category of the motorized two-wheelers. Competitive Rivalry within the industry:
There is stiff competition from Avon, Atlas, Hero and few foreign competitors. The competition is strong in standard cycles because the market growth of standard cycles is slow. But it is weak in a sense that market for special cycles is growing rapidly. Switching cost in special is low so the buyer may shift the demand.
From the five forces analysis, it is evident that TI Cycle should come up with a major innovative product which can help the company gain back its market share and have an edge over its competitors. TI Cycle should look into the latest contemporary technology and mechanisms in order manufacture products that could target the developed countries, where geared bicycles were used. It was meant for fun and exercise. The company should work towards getting the channel power inclined towards itself. Being known for its quality and good reputation, it won’t have to be a tedious task. Dealers should be provided with good incentives to push the company’s product category. Very good relationship has to be maintained with the dealers. As these relationships mature, the critical customer data would automatically start flowing in and help in the product design and manufacturing process. Dealers expected the company to innovate in features, styles and accessories, and give them an opportunity to charge premium prices. They observed that fancy cycles attracted customer to the stores. The company should consider such feedback given by the dealers as they know the customer’s buying behaviour more than anyone else.
FUNCTIONING OF THE COMPANY
The company has a strong and unionised cross-functional unit. There was proper flow of communication from the top management to the lower employees. There held a brainstorming meeting every Saturday by a cross-functional team of executives to discuss the various issues the company faced. This made them aware of all the current problems faced by the employees and the company. The new product development was done every meticulously and lot of coordination existed between various departments at various stages of the development. The product management, product development, manufacturing and purchase departments under the overall guidance of the General Manager-Marketing and the Vice President jointly shared the new product design and introduction activity. Such cross-functional teams are an important to develop products that are marketable and manufacturable at low cost. Due to this set up the manufacturability-related problems were avoided. The skills required to fully exploit this process of product development seemed to be available with the company However, it is observed that the manufacturing department comes into picture only when the prototypes were being tested. Being the manufacturing team, the employees will be well aware of the problems that arise in the manufacturing stage of various cycles which discussed at the design stage. This could help the team to come up with a better design in a shorter time.
NEED TO INNOVATE
The company is in a mature industry where the completion is very high. Market has matured for both ‘Specials’ and ‘standards’ model. In order to survive, the company should gain back the market share and to have a competitive advantage over the competitors. The imminent need is to add a new variant to the existing models. In the long run the company has to come up with more innovative models or enter the two wheeler market. For idea generation the company can include the various internal sources of information such as their strong R&D, Production and manufacturing department, Marketing and sales team and the suppliers. External sources of information can also be very helpful. Firstly rich source of information from the customers can be obtained, in order to know what they are looking for. Brainstorming techniques can be implemented among the various experts in the two wheeler industry. This could also throw light on whether or not to enter the motorcycle category, which would be new to the company product. Open innovation could be another saviour for the company.
The company can access the global R&D community beyond the confines of its own industry in order to accelerate its speed of research and innovation. This could also generate unforeseen additional new innovative ideas which the company is badly in need of. Current spending within each of the categories should be assessed and compared to the desired spending and adjustments should be made. This way the company would not allocate funds to yet another close-to-home, low-value product project when it would be strategically more advisable to take on a riskier, high-potential-return project. Strategic Portfolio Model
There has been a decline in sales due to high price, heavy competition in domestic and global market. For the company to achieve its goal, innovative ideas have to be generated and screened in order to come up with a product which will have a competitive advantage.
TI is committed to come up with a new innovative bicycle and improve on the existing one to the extent that they will become the market share leader in that market in the long run. The major growth opportunity is the youth segment. This opportunity will be addressed using the strong cross functional team and the R&D of the company. Goals/Objectives
The objective of TI is to increase sales and market share of the company. The goal of the company is to have a sustained and a profitable growth and to go the number two position in the near future and number one in the long run. Guidelines
The goals will be achieved by adhering to the company’s quality standards. The products manufactured should fulfil the safety standards. The time and entry to market should be strictly captured to ensure the first mover’s advantage when the product hits the market Idea Screening
Idea screening which is the first evaluation of innovative ideas. Various types of screens that have to be used by TI Cycle are: Growth Screen Enter a new category of business that represents a new addition to the company’s portfolio Expand a company’s global /domestic market share within a product category Deliver a price advantage which will allow firms to gain market share at the expense of competition Create a whole new category of product-market, strategically expanding sales Category Screen: Demand a new product idea which:
Has proven consumer attractiveness (volume)
Demonstrates growth potential
Has room for additional products which might offer benefits to the consumer Strategic role screen: Demand a new product idea which:
Are technologically superior to products currently available? Capitalize on existing distribution and delivery systems
Are able to provide a foothold in product markets currently outside the company’s sphere of activity Allow the company to develop technical or marketing skills in a new sphere Are aimed at growth markets
Will use up excess capacity
Internal strength Screen: Raise issues which examine whether the idea: Increase of use of an ‘efficient manufacturing system’
Capitalizes on existing marketing and sales efforts
Exploits technological, engineering, design or marketing skills Strategic Planning
The Simplified Strategic Planning process cam challenge the TI Cycle to view their universe of Market
Licence to others
Risk Strategies to be used
The various risk strategies to be considered by the Product Management team of TI Avoidance: Eliminate risky project altogether though an opportunity cost is incurred. Mitigation: Reduce risk to an acceptable, threshold level through redesign or increasing product reliability. This way cycles can be made available for a lower cost. STAGE GATE ANALYSIS
Stage gate analysis (SGA) is a technique that’s used in new product development and processes in which decisions regarding the continuity of product development are taken at certain decision points termed “gates”
between the various “stages” of the process. Stage-gate systems recognize that product innovation is a process. And like other processes, innovation can be managed. Stage-gate systems simply apply process-management methodologies to this innovation process. A process is sub-divided into a number of stages or work stations. Between each work station or stage, there is a quality control checkpoint or gate, A set of deliverables is specified for each gate, as is a set of quality criteria that the product must pass before moving to the next work station. The stages are where the work is done; the gates ensure that the quality is sufficient.
Each stage is usually more expensive than the preceding one. Concurrently, information becomes better and better, so risk is managed. The entrance to each stage is a gate; these gates control the process, much like quality control checkpoints control the production process. Each gate is characterized by a set of deliverables or inputs, a set of exit criteria, and an output. The inputs are the deliverables that the project leader must bring to the gate. The criteria are the items upon which the project will be judged, the hurdles that the project must pass at that gate to have the gate opened to the next stage. The outputs are the decisions at the gate, typically a Go/ Kill/Hold/Recycle decision, and the approval of an action plan for the next stage.
The team in charge of stage gate analysis should do a strong check on actual demand on the bicycle. Special stress should be on the demand forecast at the point when the bicycle will actually hit the market. Also, factors like 4P’s of marketing should be kept in mind and their feasibility should be checked at all gates stating here. A bicycle costing INR 40,000 and aiming at Indian masses should be rejected right here; whereas a bicycle which measures Blood Pressure for Heart patients might be accepted. Detailed Investigation
Here questions such as, if the new idea is treated as a separated SBU after it hits the market, will it be able to take care of its costs and generate profits; will enough units of this bicycle be sold to reach break-even in 3 years?, should be asked. Post Development Review
Here a very strong check should be made using GAP analysis of what was approved in business case analysis at gate 3 and what was actually developed. The team should see if more costs is being incurred to develop than what was predicted. This gate is a testing ground of assumptions. Will the bicycle satisfy the need that it aims to satisfy? Pre-commercialization business analysis
After the bicycle is ready, commercial analysis is to be done where the team needs to see competitors and take a call on positioning and location of launch. This is also where the team determines where the bicycle should be launched as a test campaign. This gate also sees the kind of push the bicycle will require in terms of advertising? Post-Implementation
This is the last gate of stage gate analysis. Here we analyse the effectiveness of the gates i.e. check if the team was too stringent on the gates or too relaxed? If a bicycle hit the market ahead of its time, where consumers cannot understand and adapt to its functioning? Does perceived value of the bicycle justify the price it comes at?
The TI should consider following future strategies for the market development. TI should focus on the Northern market to increase the sales. Can consider selling bicycles to B2B markets
Can target home delivery services, courier services, farmers Offer cycles to Government which distributes free cycles to rural kids Athletes and adventure enthusiasts can be targeted
Should develop high end geared bicycles to compete in the international vehicle Fancy cycles with antitheft facility and various exciting features for the youth Purpose built cycles for house wives with added carriers.
A wide carrier sturdy cycle for lunch providers in the urban areas, especially the dabbawalas
Use cycle to carry tiffin by dabbawalas
TI should focus on redeveloping its bicycle manufacturing.
R&D should waste resources in inventing technology which is already available in the market. Resources should be used for effectively. One of the main issues for the TI’s market share decline was its price. Unlike its competitors it doesn’t have access to low cost decentralized manufacturing facilities. These tie-ups grew over the years and is difficult to replicate. TI should move into such relationship with its suppliers and get various cycle parts for a lower cost. Standard cycles have to be improved upon. Customers weren’t attracted towards standard cycles like they were towards other fancy cycles. This in turn made the dealers not book orders for the same. Probably more exciting features can be added and can be given a stylish look. As observed in the case, TI is the leader in the ‘Specials’ cycle category. Research should be carried out to analyse what factors in the specials cycle attracted the customers i.e. the quality, brand image etc.
This is important because although Specials dint have the price advantage, Ti was the market leader in this category. Study its competitor – Hero. Hero performed extremely well both in Standards and Specials. Apart from price there could other reasons such as distribution channel, promotions of its products which could be adding to its success. These findings can help TI to rectify its strategies Include lower cost segment of bicycles. Create another brand of bikes. These bikes will be of the lower cost variety. Outsource manufacturing of lower cost products to different countries. Change distribution strategy to include major retailers. Lower cost line can be sold in these stores. Include sales over the Internet.
TI has various advantages which has been not been capitalised upon. The cycle market in India and outside looks promising. TI should capture the opportunity and utilise its resources efficiently. This way TI Cycles can achieve the number two position in the near future and number one in the long term.