Financial Daily from THE HINDU group of publications
Saturday, May 22, 2004
Kinetic pins hopes on `honest pricing'
Mr A. Firodia, General Manager, Kinetic Engineering Ltd, at a press conference in the Capital on Friday. - Kamal Narang
Chennai , May 21
KINETIC Engineering Ltd believes its pricing strategy is a key element in growing sales of its two-wheelers. It would rather go in for "honest pricing" and build volumes than keep prices high and "milk the market" only to drop prices later.
Stating this during an interaction here today, Ms Sulajja Firodia Motwani, Joint Managing Director, Kinetic Engineering, said Kinetic's strategy ensured that its initial customers were kept happy they did not feel cheated if prices were dropped after a year.
"It is more honest to price it right and let the market build rather than price it high and drop (prices)," she said, referring to some companies' strategy to "milk the market" by pricing their products at a higher level and reducing prices later.
She illustrates this point with the pricing of its scooterette, Zing. At launch, the Zing was priced at Rs 22,999 ex-showroom and after a year, the price was hiked to Rs 23,999.
The same strategy has been adopted for the Zing80, an improved variant with a more powerful engine compared to the basic model. The price was about Rs 26,000, at least Rs 5,000 lower than the competition.
Ms Motwani, who was here to launch Zing 80 and inaugurate a dealership, said Kinetic's marketing budget was Rs 50-60 crore, which was adequate for a company of Kinetic's size. It tried to focus its budget, spending money in cycles.
For instance, it would promote scooterettes at the beginning of an academic year, motorcycles during harvest time and scooters during festival season.
On Kinetic's acquisition-cum-alliance deal with Italjet of Italy, she said some dies and moulds had come to Kinetic and some more were on the way. Three scooters would be launched this financial year - in September, January and March, for which Kinetic had started working with local vendors. The scooters would be fitted with Kinetic engines. Kinetic would manufacture seven Italjet scooters with engine capacities ranging from 50cc to 250cc.
It would sell these scooters under its brand name in the domestic market, export to Italjet requirement and also export the scooters to markets where Italjet did not have a presence, under the Kinetic brand.
What did the programme to manufacture Italjet scooters in India mean for Kinetic? It would reignite the passion for scooters, Ms Motwani said and help re-establish the company as a manufacturer of top class products and remain No. 1 in scooters.
"This means a lot in terms of future strategy. We need to move to a new phase and enter a situation where we can make many new models."
Declining to reveal how much Kinetic paid Italjet for the deal, Ms Motwani would only say that the company paid "a fraction" of what it would have taken Kinetic to develop those scooters on its own.
Apart from the money - it would cost anything from Rs 5 crore to Rs 15 crore for each model - time was also important. It would have taken Kinetic a full 15 years to introduce seven models as each model required one-and-a-half to two years. Besides, there was also the investment risk, something that Kinetic did not have to face now.
This financial year she estimated that Kinetic would sell 18,000-20,000 Italjet vehicles, under the Kinetic brand name in the domestic market, and in a full financial year, after all the models were launched, about 2-2.5 lakh.
Ms Motwani said Kinetic would bring in Comet, a 250cc sports bike from Hyosung of Korea, in September. This would be in limited numbers - about 500 only. The plan was to sell the bike in 15 cities rather than the four it sold the Aquila motorcycle it brought in from Hyosung.
The Comet would be brought in as completely knocked down kits. Some parts like tyres and grab rails would be locally sourced and the bike was expected to be priced at about Rs 1.5 lakh.
She said the Kinetic group was also looking at restructuring its various businesses. For instance, it hoped to grow its engine design services. It also planned to divest its tool room as a separate company.
The tool room business now had 150 engineers and it was now being used only for captive purposes. The idea was to develop tools for other companies, mainly international ones, she said.
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