Re: Conspiracy theory : Are KTM Being sold at loss or least margin in India ?

Topic Approved but closed. Big post alert.

There's no conspiracy tag needed to this question. We just need to be in the shoes of a manager.

Now, think, What could have come in Bajaj's mind when they invested in KTM, despite already being with Kawasaki for years?

Rather let me re-frame it as, What comes to any businessman's mind before a new investment?
Maybe profit? Maybe Market Share? Maybe more sales? Maybe different "type" of products? Maybe brand enhancing? Maybe better usable technology?
Your answer lies somewhere on these lines only.... I'll leave the thinking to you.


And NO, the KTMs sold in India are not sold at a loss. Nobody does a business at loss. Yes, they might be making larger profits exporting abroad, but they're not making loss selling it in India. Some points are mentioned below:-

1. Iron costs Rs. 1.5 to 2/ kg in India. Ouch!

2. Producing a motorcycle or anything for that matter, adds various kinds of costs, a rough classification of which are:-

a. Variable Costs: Costs which are directly proportional to units produced. Including Material, workman's wages, processes like painting, cleaning, polish, etc.
b. Fixed/ Semi variable Costs: These costs can't be related directly to a product's production. These include telephone charges, electricity charges, managers's salary, monthly (fixed) salary of workmen, etc.
c. Then there is past R&D recovery too, and licenses, etc.

3. You'd be amazed to know how low the Variable costs of a Duke or a CBR 250 or any motorcycle are... I mean, the costs of the frame, wheels, engine, everything material in it. But, I won't even mention the approx. figure for some reason.

4. However, even though the sales revenue from a Duke, can't be directly related to a telephone's charge, or fixed salary of a manager, there's no doubt that only the company's product's sales will have to compensate for these "FIXED" expenses. That's where the equation gets bigger... Because its not always clear how much a product should be sold for its contribution to fixed costs of the company.
Hence, you can't find out the overall final cost of 1 unit of a Duke motorcycle (or any product), unless you have huge amounts of business data at your disposal, including each fixed cost.

5. Still, Duke, or any product for that matter, contributes not only to a company's variable costs on that unit, but also to fixed costs and a certain degree of profit, in a combined manner.

6. We must also understand that EU is not a market, where cheap will be widely accepted as "excellent".
People are quality conscious, and if you sell a KTM at much lower price in Europe, the effect will be negative.
You try selling a XYZ besides a Honda at 3 times lesser price than Honda, and you know what people will think?? More often than not, they'll perceive your XYZ product as "Cheaper because of lesser quality/ value/ performance/ reliability".
They associate price with quality. That's a fact.
I very well know KTM is not any "XYZ" company, but again, when you compare anything to a Honda, people can choose a Honda over it, in some cases at least if not all.

7. A fair share of price of a product goes to middlemen.



Let me take another Business related example.... If you request a shopkeeper for a discount on a (Certain-Brand) DVD that has MRP as Rs. 30, he will say, "I got it for Rs. 28, so can't I earn Rs. 2 on it?"
You think, "Yeah, let him earn Rs. 2 on it", and purchase it for Rs. 30 only.

But did the shopkeeper really get it for Rs. 28 as he says? Is he only earning a margin of Rs. 2, by investing heavily on his shop and all?
I personally checked a trader's bill of such a shopkeeper, and I found he got it for Rs. 17.90. This is exact figure. That's why, I didn't mention the so called (Certain-Brand).

The shopkeeper earns Rs. 12.10 per DVD. The wholeseller/ distributor earns even lesser because he deals in bigger quantities. The company also earns a certain amount that's hard to find out due to the Fixed Cost vs Variable Cost factor.
But still, the variable costs on this DVD are not even Rs. 1 per unit. Believe it!! And it sells for Rs. 30.


I hope you got an idea of how most businesses work.
Every middleman must benefit from your company, because he's taking your product to the world... If your product reaches the world, no matter how low quality it is, it will be accepted somewhere. If not Japan, or Australia or USA, then maybe the african underdeveloped countries. But it will sell, only if it reaches.


So, a big NO. All this is not a conspiracy. Each decision is explainable. If you were a manager, you would easily understand this.

I'm closing this topic, because there's nothing much to discuss and also, this thread may prove to be a fighting ground later on.
You or other members, may PM me, for more clarifications.
This thread might be opened, if another staff decides so. No issue from my side.