Free Marketing Essays - World TATA India
Marketing 101
Introduction
The world renowned TATA Group is one of the largest business conglomerates in India. The group has operation in about 80 countries worldwide with revenue of about $55 billion in 2007-08. The group is mainly involved in 7 sectors namely Information technology (IT), Engineering, Materials, Services, Energy, Consumer products and Chemicals. For our marketing project we have focused on TATA Motors, which manufactures vehicles like buses, cars, lorries, trucks etc. for various segments.
We have structured this report in such a way that we start with a brief description of the company (TATA Motors), its competitors and its consumers. Then we move on to describe our findings regarding the marketing mix adopted by the company for a particular new product that will be described later on. Lastly, we end the report with some of our suggestions that we feel can help the company in improving its marketing mix.
The Three Cs
Company
Established in 1945, TATA motors has emerged from being a manufacturer of locomotives to become a producer of buses, lorries, cars, SUVs and even sedans. The company is the world’s fifth largest manufacturer of medium and heavy commercial vehicles and also the world’s second largest manufacturer of medium and heavy buses.
Over the last few decades, TATA has been focusing more and more on manufacturing and marketing main-stream consumer cars. Some of the most popular main-stream cars that TATA has produced include the TATA Indica, TATA Indigo, TATA Sumo and more recently the TATA Indicab.
Consumers
Although TATA Motors sells cars to a wide variety of customer segments, we limit our discussion to only one segment - The Indian economy buyers. We do this in order to better understand how TATA markets economy cars for this segment alone. The Indian economy cars are mostly brought by people from the so-called middle class of the Indian society.
The middle class constitutes the largest section of the Indian society and has further divisions too (as explained later). It is notable that the majority of the people from the middle class use a motorcycle or scooter for everyday transportation. Since the independence of India in the late 1940’s, the middle class has proved to be a rapidly growing segment. This rapid growth is an incentive for the makers/sellers of products like cell phones, budget cars (bike replacements), 2nd hand automobiles etc.
Competitors
Main competitors of TATA motors include Mahindra and Mahindra motors and Suzuki motors. Suzuki currently manufactures the Maruti 800 and the Alto which are directly aimed at the Indian economy car buyers. In fact the Maruti 800 was actually introduced about 2 decades ago and has stood the test of time and still proves to be a favourite among car buyers. Mahindra and Mahindra is another key player in the Indian automobile scene.
Although the company is not currently in the market of manufacturing economy cars, it has announced plans on entering this segment. Other competitors of TATA motors in the economy car segment include the motor bike and scooter manufacturers as well as the 2nd hand car and refurbished car market.
This is because of the nature of the Indian middle class where people still purchase 2 wheelers or refurbished 4 wheelers for their everyday transportation needs. So companies like TATA that target this segment need to be aware of other forms of competition such as those mentioned above.
Opportunity Analysis
The advent of Information Technology in India over the past decade has led to rise in the income level of the average Indian. The economy of India has grown by 7% per annum over the past few years. According to an article printed in the Business Week dated May 19, 2007, 93% of the households in India earned less than $1,969 a year in 1985, or less than $1 a day per person. By 2007 this number had reduced to 54%. These households had started earning from $1,969 to $4,376.
This growth has led to the rise of India’s new middle class, touted to be the “next big thing” by the consumer goods industry the world over. The middle class in India is divided into two categories; the Seekers, earning from $4,376 to $10,941 and the Strivers, earning from $10,941 to $21,882 per year per household. About 50 million people are ranked as the Indian middle class today. By 2025 this number is expected to rise to 583 million people or 41% of the population.
This class of people is experiencing a new purchasing power like never before. Due to the difference in the cost of living in India and USA, it is calculated that an income group earning $4,376 to $21,882 in India has the same purchasing power as a group earning $23,000 to $118,000 in USA. This has created a new demand in India for products like cell phones, cars etc., which are now considered as basic necessities but were out of the reach of most Indians till a few years ago.
One such category of products is vehicles. Till now a car has been beyond the reach of the middle class. This had given rise to a range of two-wheelers to cater to their needs. A two-wheeler can be bought for $700 in India, but the least expensive car starts at $4,600.
The difference in price was an open invitation for industries to introduce a car, which the middle class could afford. This difference in price also gave rise to the second-hand car market in India. These cars were not always satisfactory though, because unlike the US, car owners in India do not change cars for at least 5 – 10 years and so the cars are usually not in very good condition. Added to that, these cars lack the positive feel of a new car.
All these conditions have culminated into a gateway to the pockets of the middle class. A car, which would provide the safety & comfort which two-wheelers cannot, the feel, which a second-hand car cannot, and yet be affordable, is the need of the day.
Such a car would also become a transition point between the two wheeler and the four wheeler market. This was an opportunity waiting to be grasped. TATA motors already being a well known player in the car market hopes to capitalize on this rapidly growth of the Indian middle class through the introduction of the TATA Nano – a 1 lakh rupees or $2500 car.
The Four Ps
Product
Design
The design concept and interiors of Nano was laid out considering a typical Indian family and thus has a roomy passenger compartment with generous leg space and head room. It can comfortably seat 4 persons. Also, its mono-volume design, with wheels at the corners and the power-train at the rear, enables it to combine both space and maneuverability, which sets as a new benchmark for small cars.
The Nano has a rear-wheel drive, all-aluminium, two-cylinder, 623 cc, 33 PS, multi point fuel injection petrol engine. The lean design strategy has helped minimize weight, which helps maximize performance per unit of energy consumed and delivers high fuel efficiency. Performance is controlled by a specially designed electronic engine management system.
Safety and Environmental Sense
The Nano’s safety performance exceeds all current regulatory requirements meeting EURO IV standards. With an all sheet-metal body, it has a strong passenger compartment, with safety features such as crumple zones, intrusion-resistant doors, seat belts, strong seats and anchorages, with rear tailgate glass bonded to the body.
Tubeless tyres will further enhance safety. The Nano's tailpipe emission performance exceeds regulatory requirements. The high fuel efficiency also ensures that the car has low carbon dioxide emissions, thereby providing the twin benefits of an affordable transportation solution with a low carbon footprint.
Nano and Maruti 800
As mentioned before, the Maruti 800 is a highly successful, competing car to the Nano manufactured by Suzuki. In terms of cost, Maruti 800 costs nearly twice as much as the Nano. On the other side, Maruti 800 has an 800 cc engine and a top speed of 120km/h. For Tata Nano, It could only reach 90 km/h with 623 cc engine but with a better fuel efficiency. The last but not the least, Nano will have 21% more interior space than Maruti 800 and it will be 8% small than Maruti 800. As a whole, Nano is more stylish and cheaper, also enjoys high fuel efficiency. It might possibly end up being a substitute for Maruti 800.
Nano and Motorbikes
While Tata Nano is the least expensive car in the world and majority of those who commute on motorcycles, dream of owning and travelling in a car, here are 5 reasons explaining why it might not be a viable replacement to two wheelers:
- High entry cost: While the cost of the Tata Nano is almost half of that of Maruti 800, it is still twice as expensive as a 150cc motorcycle.
- Fuel economy: Tata Nano should be able to run for around 20kms in a litre of petrol. If we compare this to the mileage delivered by 100-125cc motorcycles, it is roughly 4 times less.
- Expensive spares: Although the Nano is a cheap car, it is only cheap by the car standards. So we cannot expect the spare parts and servicing to cost the same as that of a motorcycle.
- Other running cost to be higher as well: From insurance to toll on the highway/expressway to parking, each and every thing would be more expensive than when a person uses his motorcycle for travel.
- Parking blues and traffic snarls: Heavy traffic and lack of proper parking facilities might make it hard for Nano consumers to find parking space, while it is much easier for motorcycle owners.
However it must be noted that for a family, TATA Nano seats more people and guarantees safety on the road. That’s also the reason why TATA Nano is targeting the family and mid income segment. Not only because of its high value from low price but also because of the safety and comfort, consumers might want to consider the Nano for their family members and for travel purposes. In consequence, part of the market share of motorcycles might be taken by Nano and further the rising trend of Indian middle class could push the sales.
Price
What $2500 buys in India: TATA Nano
Tata Motors have used a simple pricing strategy that will not only crush the competition, but will also help in direct advertising of the product. The no frills edition is priced at only one lakh rupees ($2500 or S$3333) excluding additional tax, commission, etc. This makes the orb shaped car the cheapest car available in the world today.
Market Penetration Pricing
The majority of people in India belong to the middle class category. The people’s car has been set to a low initial price so that it can penetrate the middle class segment quickly and deeply, by attracting a larger number of buyers and winning over a large market share. Since the sales volume will be high, this will result in lower production costs and eventually they can reduce or even keep selling at this price, and will start to gain higher profits later on.
Type of Market
The Tata Nano’s main competitor is the Maruti 800, which costs twice as much as a Nano. However, the Maruti 800 has a better resale value, more powerful engine and more features than the basic Nano. Thus the low priced cars segment is dominated by a few firms, and this makes the market an oligopoly. Pricing and advertising are the main factors which determine the products success in such a market.
Will the Nano’s price remain constant?
Some critics say that with the rising price of oil and steel, TATA would not be able to keep their promise of selling the car for one lakh rupees for a long time. However, TATA claims that they are relying on a simple pricing plan and hope to make profits in the long run, due to large volume sales. The company has already started to factor in future rise in steel costs, and they plan to cut manufacturing costs even further, rather than increase prices.
Price and Company objectives
Currently, TATA Motors gains about 18% of its revenues from International Business. The company’s objective is to expand its international business, both through organic and inorganic growth routes. With the launch of the world’s cheapest car, TATA motors aims to fulfil this objective. They have set to launch it internationally by next year. Like in India, there have been mixed reviews about the product, but the price is a huge attraction for the consumers. The Nano’s preview in January has also sparked a rise in the share prices of Tata Motors.
Promotion
Current Promotion Techniques
On January 10th, 2008, Tata Motors previewed the much awaited Nano branded as the “People’s Car”, at the New Delhi Auto Expo. This world premiere created a huge hype and was covered by all major news channels. This unveiling proved to be a great means to advertise the Nano, as over 200,000 visitors from all over the world came to see the little Tata Nano. This car has also been showcased at the 78th annual Geneva Show.
The car would be sold commercially starting October 2008 but no television advertisements have been shown so far. Rediffusion, the company handling the advertising of the Nano, had done a one day nationwide print campaign, with a budget of about 4 to 5 crore rupees (40 million rupees or slightly lesser than $1 million). Apart from that the company has decided to set aside about 30 crore rupees (300 million rupees or about $6 million) as advertising budget.
It is notable that the majority of the advertising is from the media coverage and through word of mouth. The fact that it is the world’s cheapest car is a big factor that helped promote the car. In fact, at the press conference held at the New Delhi Auto Expo, Chairman Ratan Tata actually quoted this point and said that the Indian public deserves better transport that is both safe and economical, and advertised it as a compact, safe, cheap car with looks that don't make you cringe.
The Word “Cheap”!
Even though the car has been promoted as the world’s cheapest car, the word “cheap” is interpreted in many different ways all over the world. In India, the word cheap, for most people creates an impression of low price. However in many other countries, cheap means inferior and this has led to a negative impression of both the product and the company. Many critics were sceptical of the Nano and if it would be able to last as a product. Its closest competitor, the Maruti 800, has decided to differentiate their product by not cutting its price and promoting it as a reliable and feature rich family car.
What the Apple iPod and the Tata Nano have in common
It is not everyday that there is a global euphoria about a product that has the capability to be a standard by itself for both customers, as well as industry players around the world. Tata has done just that, by proving that cheap products are not necessarily inferior in quality. When the iPod was launched, we saw a similar euphoria around the world, and it is a brand that is differentiated from the rest.
The launch of this car was very similar to the launch of the Apple iPod where Steve Jobs was personally present to give a keynote speech and it was watched by millions all over the world. At the Nano’s launch much of the public relations, product branding and marketing was done at the launch itself by Chairman Ratan Tata himself. And from a marketing perspective, this can prove to be very successful marketing as it will spread the notion of hope and a dream, like a virus, in the minds of the people!
Place
Ease of assembly by reducing distribution layers
As the price of the Nano is quite low, retailers are worrying about the thin profit margin and the way TATA plans to distribute the cars. There is a very interesting business model innovation in the production and sale of the new Tata Nano. First of all, the Nano was designed for easy assembly by non-professionals, which makes it possible that the Nano could be sold in kits just like bicycles. Nanos are distributed and serviced by people who will assemble it for the consumer, which could remove layers in distribution and service and make the Nano available throughout India without a large dealership network.
"Open distribution" innovation by using third parties
TATA mobilizes large numbers of third parties to reach remote rural consumers, tailor the products and services to more effectively serve their needs, and add value to the core product or service through ancillary services. These third parties consist of non-commercial organizations and social institutions in rural areas as they could effectively reach target customers.
As a whole, Modular designs combined with creative leverage of local third-party institutions help participants to get better faster. Instead of developing "customer co-creation" in the narrow sense of soliciting isolated ideas from customers, TATA motors are building long-term personal relationships with customers, enriched by the specialized capabilities of broad networks of third parties that generate much deeper insight into customer needs and afford opportunities to tailor value.
On-Line Sales?
Conventional automobile wisdom says that a car dealer is always required to complete the transaction and a web based option can be just an information window. It can never really be an alternative to a ' brick-and-mortar' dealer. As the recent blog post by TATA Nano team reveals, TATA is seriously considering online car sales option and is asking the comments from people to help them design the right service. If introduced, it could prove to be a revolution with regards to the vehicle distribution model.
Our suggestions to TATA for improving the marketing mix:Focus more on the product
Our first suggestion to TATA is pretty much straight forward. It is of no doubt that the TATA Nano has very attractive specifications and features. However if it is to compete effectively against already successful cars like the Maruti 800, efforts must be taken in order to educate and market the core benefits offered by the features of the car to potential customers. Currently TATA is not focussing enough on the core benefits like more interior space, cleaner engines, safety etc. that only a Nano can offer in comparison to other competing cars in this segment.
Focus on the value offered not just price
Although the unique selling point of the Nano is the low price, TATA must try to focus on
high value that customers get for such a low price. Such a tactic is necessary for long time survival in the economy market because of a few reasons. If price alone is seen as a selling point, then even the consumer with the lowest purchasing power might not consider buying the Nano because of social stigmas like owning a “cheap” car and being so poor that any other vehicle is unaffordable. This is especially very true in collectivistic cultures like India where social customs, taboos and even stigmas play a key role in the purchasing decisions of not just individual consumers but also the society as a whole.
Customization Options, Add-ons: Can follow a model like Dell
Clearly, TATA is targeting the Indian middle class with the Nano but it is well known that this segment is not homogeneous as we expect it to be. Variations in purchasing power, individual preferences in terms of extra/less feature etc. exist within this segment. So instead of selling a standard version of the Nano, TATA might want to consider providing customisation options in order to cater to different customer needs and wants. This kind of a scheme will also help TATA to maintain customer loyalty and good will. In this regard, the Dell computer customisation business model is a good example of how customisation can lead to a competitive edge.
Ensure even and far reached distribution
Since the price of the TATA Nano gives the product a high potential for market penetration, there is definitely going to be a huge demand when the Nano is introduced commercially later this year. Many potential customers of the Nano might be from rural parts and villages and it might not be very easy to set up a dedicated show room or factory in these places. This is why TATA might want to consider private distributors in order to ensure distribution in even the most remote places. Furthermore, in order to meet with the expected stream of high demand, TATA might want to consider private assemblers too. Our research has shown us that TATA is already planning on introducing such a scheme where external parties can manufacture the Nano under TATA’s quality control.
Provide Resale Option
Finally, TATA also needs to think about the future of customers who buy the Nano. The 2nd
hand and refurbished car market is very lucrative in India. But customers might face the problem of reselling a car that initially sells for only $2500. On a large scale, in the future this might cause concern to customers who might want to sell off their Nano. If TATA can maybe provide a buy-back scheme, it would prove very beneficial to long time customers as well as providing an efficient and environmentally friendly way of disposing the car parts and spares.
Other considerations and Conclusion
We have seen the approach taken by TATA towards educating the public about the TATA Nano. However there are also a few external developments that might act for or against the TATA Nano. For one, TATA Motors has acquired well-known brands Jaguar and Land Rover recently. TATA claims that the technology from these brands could be used on budget cars like the Nano to make them even superior.
Critics on the other hand feel that the move was done by TATA in order to remove the so-called budget image that has fallen on TATA motors because of the introduction of cars like the Nano. Recently TATA also repositioned the already successful TATA Indica for the taxi market by adding a Liquefied Petroleum Gas powered engine and renaming the product as the Indicab.
Once again, there are many who feel that this move has made TATA into a taxi car maker instead of being a versatile consumer car maker. These recent events could also affect the way people view the TATA Nano and could affect TATA’s plans on introducing the Nano to the international car market.
Other than that, the TATA Nano is indeed a revolutionary car and one can only marvel at how much technology has grown so that a car can be rolled out for only $2500. We indeed hope that customers will appreciate the product and hope that TATA will be successful in all its efforts (marketing or otherwise) to make this product into a success.
Web references
- TATA Group Profile - http://www.tata.com/0_about_us/group_profile.htm
- Profile of TATA Motors - http://www.tatamotors.com/our_world/profile.php
- TATA Nano press release - http://www.tatamotors.com/our_world/press_releases.php?ID=340&action=Pull
- More info about the TATA Nano - http://www.autoblog.com/2008/01/10/what-2-500-buys-in-india-tata-nano-unveiled/
- Possibility of selling the TATA Nano online - http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=161&Itemid=94
Other references
- Principles of Economics, Frank and Bernanke, 3rd Ed, McGraw Hill.
- Business Week dated May 19, 2007
