Tata Nano

INTRODUCTION 1.1 BACKGROUND OF THE COMPANY Tata Motors is Indias largest automobile company, with revenues of USD 14 billion in 20082009. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, and Spain. The companys 24,000 employees are guided by the vision to be best in the manner in which we operate best in the products we deliver and best in our value system and ethics (Tata Motors, 2010) According to the Equity Bulls (2010), Tata Motors' total sales (including exports) of Tata commercial and passenger vehicles in January 2010 were 65,478 vehicles, a growth of 77% over 36,931 vehicles sold in January 2009. The company's domestic sales of Tata commercial and passenger vehicles for January 2010 were 62,202 vehicles, a 74% growth over 35,704 sold in January last year. Cumulative sales (including exports) for the company for the fiscal at 498,108 vehicles, recorded a growth of 24% over 400,284 sold last year. 1.2 TATA MOTORS TATA NANO In January 2008, Tata Motors unveiled its People's Car, the Tata NANO, which India and the world have been looking forward to. Tatas NANO is a new product with a new technology which promises the market of an efficient car with a very low cost. The Tata NANO has been subsequently launched, as planned, in India in March 2009. A development, which signifies a first for the global automobile industry, the NANO brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at USD $2500.00 (TataNANO, 2010). 1.2.1 Tata NANO Market Segment The Tata NANO is launched car for the mass market and it has been labeled as the Model T for the 21st century. Available at just USD $2,500, it is billed as the world's cheapest car. The potential is for a totally new market segment -- first in India, then in Asia's other emerging markets. The company is targeting lower income group with family, first-time buyers of car (fresh graduates) and motorcycle owners. Tata NANO positioned itself as the world cheapest car and yet does not compromise the quality, safety and environment. This positioning will be achieved by leveraging Tata NANOs competitive edge such as industries experience from the parent company Tata Motor who has been in vehicles industries since 1945. PORTER FIVE FORCES ANALYSIS

2.1 PORTER FIVE FORCES In 1980, he published his first book, Competitive Strategy, which owed much of its success to the five forces framework, that this paper focuses on (Porter, 1980). This framework sought to relate the average profitability of the participants in an industry to competitive forces. A survey carried out by Porters opponents in the late 1980s revealed that only a few of the influences Porter flagged commanded strong empirical support. Despite the fact that the five forces framework focuses on business concerns rather than public policy, it also emphasizes extended competition for value rather than just competition among existing rivals of its application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998). 2.1.1 The degree of rivalry The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry will be dissipated through head-to-head competition. The most valuable contribution of Porters five forces framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine industry attractiveness. 2.1.2 The threat of entry Both potential and existing competitors influence average industry profitability. The key concept in analysing the threat of new entrants is the entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents position. The most common forms of entry barriers, except intrinsic physical or legal obstacles, are usually the scale and the investment required to enter an industry as an efficient competitor. 2.1.3 The threat of substitutes The threat that substitute products pose to an industrys profitability depends on the relative price-to-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs that is, the costs in areas such as retraining, retooling and redesigning that are incurred when a customer switches to a different type of product or service. 2.1.4 Buyer power Buyer power is one of the two horizontal forces that influence the appropriation of the value created by an industry. The most important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or differentiation of the competitors. It is often useful to distinguish potential buyer power from the buyers willingness or incentive to use that power, willingness that derives mainly from the risk of failure associated with a products use.

2.1.5 Supplier power Supplier power is the mirror image of buyer power. As a result, the analysis of supplier power typically focuses first on the relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the inputs supplied. The ability to charge customers different prices in line with differences in the value created for each of those buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power (Porter, 1989, 1996). 2.2 TATA NANOS FIVE FORCES ANALYSIS Figure 1: Porters Five Forces Model for TATA NANO 2.2.1 The threat of entry Product Differentiation and Cost Advantage - The new product has to be different and attractive to be accepted by the customers. Attractiveness can be measured in the terms of the features, price etc. At this level the price of the NANO car was one thing that is attracting customers. And above all this the image, trust the name TATA carries with it. Time of entry - Time is most essential thing while launching a product in any market. The launch of the NANO is quite viable as the demand of the small car is on the rise in the market. Cost of entry - The cost of the entry is referred to the initial capital required to set up a new firm is very high, it makes the chances of the chances of new entrants are very less. Even other car makers can enter to the market later but NANO has the first mover advantages. The way in which NANO is produce such a methods will lead to even more new manufacturing innovations to offer affordable cars to consumers. New entrants in this category need to address various challenges such as inflation, low-price barriers, substantial changes in raw material prices, and government regulations. But going forward more automakers will develop low cost cars. It might take few years and a huge investment for a car maker to design and build a low cost car, which itself has low margins. Therefore, the threat of new entrant to NANO in the long run is exist. This force is still favorable to NANO in short run. 2.2.2 Buyers Power As the NANO car is made for lower income group people, thus there is less power in the hands of buyer at present as only NANO (the cheapest) is available in market but soon there will be cheaper car in the market and buyers will have power to switch to other cars. However, if switching to another product is simple and cheap the customers do not think much before doing it. In case of NANO car the switching cost from motorcycle to car (NANO) is low. Thus increasing the demand of the NANO may increase.

This force is favorable to NANO. 2.2.3 Suppliers Rather than a threat to NANO, suppliers were supporting Tata Motors for launch of NANO and there are overall thousands of suppliers to TATA Motors. Driving down the price of the Tata NANO couldn't have been done without the collective effort of the component suppliers. Some of the biggest and the best in the business were roped in, with scissors and ingenuity to bring out solutions within a specified cost structure. Sister company Tata TACO worked on parts like interior injection mouldings, dashboard aggregates and door handles. It also entered into a JV with Ficosia International of Spain to supply cables and mirrors for the car that are being produced at the company's Hinjewadi, Pune facility. Tata TACO will supply over 20 per cent of all the parts being built for the NANO. Some of the other important suppliers included Sona Koyo for the steering assembly, Lumax for the lights and Caparo for the body panels. A rack and pinion steering developed by Sona uses a two-spoke variant for the base version and three-spoke variants for the CX and LX versions. A whole host of other suppliers were also involved in the project that, despite supplying smaller number of components played their part. At the end, despite steel price fluctuations, a tanking economy and component suppliers suffering from immense revenue pressures, the combined operations have helped Tata Motors achieve the magical USD$ 2,500 tag. This force is favorable to NANO. 2.2.4 Substitutes Substitutes performance - The performance of the substitute sector will also play an important role in the success of the NANO car. If the prices of the motorcycle segment decrease, it will have affected the demand of NANO on the quantity required in the market. The success of the electric car segment with player like REVA can also affect the demand of the NANO. At present, in the electric car segment only Reva car is available in India. The threat of substitute for NANO car is that of electric car, the new entrant in the small car sector is the Morbi-based world famous clockmaker Ajanta group. The company is already manufacturing electric scooters and motorcycle under Oreva' brand. Production of electric car is not difficult for them as the technology is almost similar and 70 per cent of its parts can be produced in-house, giving them an edge over the vehicle's pricing. The threat of substitute for NANO car is that of small electric car. This will be an unfavorable situation for NANO. 2.2.5 Competitive Rivalry

Number and Diversity of Competitor - This describes the competition between the existing firms in an industry. The current scenario, the small car market in India is very competitive with players like Maruti Suzuki, Tata Motors, and Hyundai which was pretty much dominated by Maruti. Exit Barriers - Even if the product fails in the market it is not that easy for the NANO to exit the market just like that because of the heavy investment it has made in the initial stage. If the NANO fails or falls flat the TATA motors will not be in a state to slow done the product even when NANO production line can be used by the other products after few modification as for NANO only the new product line were setup and huge cost were incurred. It shows there is threat of rivalry for NANO. 3.0 MARKETING STRATEGIES FOR NANO Porter Five Forces analysis showed that TATA NANO is facing some threats from its environment. These include threat of new entrants in long run, threat of substitutes and threat of rivalry in the industry. The NANO case shows that even for companies that are native to the low-income markets, selling products to the poor is a challenge. Therefore, this study has outlined a few suggestions for NANO to overturn its unfavorable forces. 3.1 Developing Customer Loyalty and Satisfaction NANO is facing threats from new entrants (in long run), substitutes (motorcycles and cars from same category) and other rivals (such as Suzuki and Hyundai). TATA NANO must develop a strong loyalty and satisfaction among its pioneer customers. Recent research has emphasized the importance of relationship marketing (Garbarino and Johnson, 1999) and many firms have increasingly been devoting considerable attention to develop and maintain close relationships with their customers, in order to create value by differentiating their offering and lowering their costs (Weitz and Bradford, 1999). Even in the car industry, which could formerly be characterized by a product orientation, establishing long-term relationships is currently deemed to be essential at all levels of the distribution channels to ease the threats from future new competitors, current substitute products and upbeat the competition. NANO can be a good starting point for providing satisfaction and generating loyalty, whereas the brand (TATA) can be the mature stage of such processes. The intention is not to diminish the importance of the brand; instead, the intention is to recognize the importance of the product (NANO), separate from the brand. The advantages of getting an early start with providing satisfaction and generating loyalty towards the product include market pioneering, first mover advantages, low-cost proactive innovation, and industry redefinition. (TorresMoraga, Vasquez-Parraga & Zamora-Gonza lez, 2008). 3.2 Marketing Mix "Marketing mix" is a general phrase used to describe the different kinds of choices organizations have to make in the whole process of bringing a product to market. In order to

overturn the unfavorable forces, TATA NANO should use the Marketing Mix concepts (four Ps) to define the marketing options in terms of product, place, price and promotion. This is particularly important for a new product like NANO. Product: NANO should be positioned as a low price tag product without compromising on safety and comfor. To lower production costs, the team developed its own small engine, put under the rear seat to save room, and they used the same handles on all doors. To guarantee the comfort of a conventional car, the team opted for four doors and five seats. Price: The NANO not only has a cost advantage over other cars, but also over some threewheelers. The NANOs retail price is only USD $2,000. Promotion: Not much is known about how Tata will promote the Nano once it is for sale, but the Nano has certainly gained a lot of media attention in international and Indian press since its unveiling in January 2008. Earlier adopters influence potential customers. The closer people live to each other, the more potential customers will find out about the innovation from an earlier adopter. Building social relationships with the people at the bottom of the pyramid (lower income group) and gaining their trust are important for NANO to have loyal customers. One advantage of the NANO is that it is produced by a conglomerate (TATA) whose products range from tea to chemicals and communication services. People will judge the NANO based on Tatas reputation in other markets. Potential customers also know Tata from its socio-economic projects to improve local education and health facilities in the neighborhood of Tatas plants. Place: In low and middle-income countries, the company needs to reach a large, dispersed, mainly rural population. Therefore, NANO requires a more extended distribution network than reaching the small, concentrated, mostly urban population in high-income countries. 4.0 CONCLUSION The NANO case shows that even for companies that are native to the low-income markets, selling products to the poor is a challenge. Tata achieved low production costs by using less and cheaper materials and also its strong relationships with its suppliers. Creating a functionality advantage is at the core of product development. The development of the NANO shows that it is possible to build cars for the poor without compromising on safety and comfort. Considering the low purchasing power of the poor leads to a push towards lower production costs than in high-income countries, albeit not as low as sometimes feared by companies. Tata was able to create a cost advantage by innovative product development and distribution set-up. NANO must continue to developing strong product features, attractive price, innovative distribution network and truthful promotional strategies. The Marketing Mix will make NANO overturn its unfavorable forces by creating customer satisfaction and loyalty. Satisfaction is often used as a predictor of future consumer purchases (Kasper, 1988). Satisfied customers have a higher likelihood of repeating purchases in time (Zeithaml et al., 1996), of recommending that others try the source of satisfaction (Reynolds and Arnold, 2000), and of becoming less receptive to the competitors offerings (Fitzell, 1998).