Case - Royal Enfied

Royal Enfied: Revival of a cult brand
For the year 2014, Royal Enfield, the motorcycle division of the India-based automobile manufacturer Eicher Motors,
recorded sales of 302,592 units. The sales for the year were higher than even the worldwide sales of Harley Davidson for
the first time in the brand’s history. The spectacular figures were the result of the turnaround strategy implemented by
the company’s management after its sales hit a low of 2,000 units per month in the year 2000.
During the early 2000s, Royal Enfield was suffering from a number of problems like poor quality of its products, outdated
design, change in tastes and preferences of customers, and the entry of Japanese two wheeler manufacturers in Indian
market. Despite having a cult following among its fans, many prospective customers saw Royal Enfield Brand as a relic of
the past.
The origins of Eicher Motors (Eicher) dated back to 1948 when Goodearth Company was set up to import tractors from
other foreign markets and sell them in India. Between the years 1952 and 1957, Goodearth Company imported and sold
1,500 tractors in India. In the year 1958, it entered into a joint venture with Eicher Tractor Company of Germany to
manufacture tractors in the Indian market. The joint venture was named Eicher Tractor Corporation of India Private
Limited (ETCI). ETCI built its first factory at Faridabad and sold its first tractor in the Indian market in the year 1959. The
name was changed to Eicher Tractors India Limited when it was converted into a public limited company when its Indian
shareholders bought out the German stake in the company in the year 1965. By the year 1975, 100 percent indigenization
had been achieved in the manufacturing of Eicher Tractors.
In the year 1980, Goodearth Company was renamed Eicher Goodearth Limited to leverage on the Eicher brand image in
the country. In the year 1982, the company entered into an agreement with the Mitsubishi Group of Japan to
manufacture Light Commercial Vehicles in India. A new company called Eicher Motors Limited was incorporated the same
year for the manufacture of commercial vehicles other than tractors. In the year 1990, the Eicher Group entered the two-
wheeler business when it bought a 26 percent stake in Enfield India Limited. By the year 1993, the Eicher Group had
acquired 60 percent of shareholding in Enfield India Limited and had become its controlling stakeholder.
As part of its global expansion strategy, Enfield started selling its motorcycles in the Indian market in the year 1949. In
1955, the Indian government placed an order for eight hundred 350 cc Royal Enfield motorcycles for use by its police and
armed forces. The Royal Enfield motorcycles were considered an ideal choice for the Indian army for patrolling the
country’s border. Despite operating in a niche segment, Royal Enfield remained one of the most admired two wheeler
brands in India. The bikes were preferred by both motorcycle enthusiasts and customers in the rural areas.
During the late nineties, sales of the brand declined due to a number of factors like poor quality, lack of a proper sales and
service network, and weakening of the brand image. The company’s top management decided to sell or close its two-
wheeler segment, as it was becoming a drag on the company's performance. However, Siddhartha Lal (Siddhartha), a
young member of the Lal family, which controlled the Eicher Group, opined that the fortunes of the brand could be
reversed. The company’s board agreed to the proposal of Siddhartha and made him the CEO of the two-wheeler
segments. Siddhartha took a number of initiatives to revive the fortunes of the brand. A new lightweight engine made of
Aluminum was developed to replace the Royal Enfield motorcycles' old cast iron engines. New engines had higher fuel
efficiency and longer life than the older engines. Royal Enfield took the help of an Austrian design firm called AVL to design
the new engines. Changes were also made to make the motorcycles look contemporary. In order to improve the quality of
motorcycles, the management made the quality standards for its component suppliers stringent. A new cruiser model
called Thunderbird was introduced in the year 2002 to attract new younger customers. Enhanced quality and new models
improved the sales by the year 2005. Within a short period of initiating quality enhancement measures, the warranty
claims went down.
With the quality issues addressed, the management focused on improving the customers’ experience of buying and
owning the brand. To improve the sales experience, Royal Enfield improved the look of the dealer outlets. Even though
the prices of Royal Enfield were higher than that of the low powered Japanese motorcycle brands sold in India, they were
cheaper than the major global brands.
And in order to keep the motorcycles affordable in the price conscious Indian market, the company did not revise its
prices even after the prospects of the brand started to improve. The strong pricing power of the Royal Enfield brand and
the improved operating margins rapidly increased the valuation of the company. By the year 2015, Eicher Motors had
become one of the most expensive automobile stocks in India.

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Royal Enfied: Revival of a cult brand

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