Tata nano case analysis

1. About Tata Nano
 The Tata Nano, one of the most ambitious projects of Tata Motors, started in 2003.
 It was envisioned by the Tata Group chairman, Ratan Tata himself.
 Ratan Tata announced this project at the Auto Expo 2006 in New Delhi.
 Tata Nano was launched in January 2008 at the Auto Expo New Delhi.
 In Geneva 2008, the Nano made its first overseas premiere.
 On March 23, 2009, Tata started production of the Nano from makeshift assembly line at
Pantnagar and launched a car in three variants priced between Rs. 123,000 and Rs. 175,000
The Downfall Saga
 Tata witnessed a sequential fall in 2010, lowest in November Nano sales was 509 units
 Issues like production delays, multiple fire accidents, increasing prices of car, difficulty in getting loan from
bank and the stigma attached to buying a cheap car was cited as cause for sales drop.
 A car in India was supposed to be a valuable product and Nano being termed as cheap car was not being
accepted by middle class.
What do they do ?
They produce very low cost cars to the indian market. Making cars available to a costumer segment that
could previously not afford cars.
External Analysis
Customer Analysis in the Budget Car Segment
Customer Segment
Segment User
Intention
Entry-Compact Lower price, 47% Tata Nano, Maruti
Car small cars Alto, Ford
Figo, Maruti
WagonR, Hyundai's
Santro, i10 and Eon
and GM's Beat
Premium-Compact Higher 11% Maruti
Car priced, Swift, Hyundai i20
probably and VW Polo
second car
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2. SUV Sport lover 23%
Luxury Sedan Luxury, 19% Hyundai Verna, VW
Rick Vento
and Chevrolet Cruze
http://timesofindia.indiatimes.com/business/india-business/Small-car-loses-appeal-with-market-share-
dipping-below-50-SUVs-surge/articleshow/11864524.cms
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3. Customer Motivation
Segment Motivation
Entry-Compact Car Esteem need and update social status
Safety & Weather protection need to two-wheeler
Aspiration of owning car.
Premium-Compact Car
Upgrading to car, Assumption as assets
SUV Speed, Safety, Reputation
Luxury Sedan Luxury, Reputation
Unmet needs
1. Expensive than what was earlier promised
2. Safety Issues
3. Not environmental friendly
Competitor Analysis
Competitor Identification
Bajaj, Chery, Honda Siel, GM etc. REVA an electric car.
Global Players in India:
Segments Companies
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4. Cars/ SUVs C Daimler-Chrysler
C Daewoo Motors
D Fiat
F Ford
F GM
G Honda
H Hindustan Motors
H Hyundai
H M&M
M Mahindra & Mahindra
M Maruti Udyog Ltd
M Mitsubishi
M Skoda
S Suzuki
S Tata
T Toyota
Two-wheelers T Bajaj Auto
B Hero Honda
H Hero Motors
H Honda
H Kinetic
K LML
K Royal Enfield Motors Ltd.
R Suzuki
S TVS
T Yamaha
Major competitors
Maruti Strength:
1. Maruti is in a leadership position.
2. Largest network of dealers and after sales service centers
3. Self competing product in small car segment like Maruti omni, Maruti 800,
Maruti zen, Wagon R
4. Second hand car market with brand name Maruti true value
Weakness:
1. Lack of product in mid size car segment
2. Low interior quality inside the cars
3. Government intervention due to having share
Hyundai Strength:
1. Quality advantage
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5. 2. Buying experience like no other
3. Quality service center across 1036 cities
4. Largest car exporter in Asian market
Weakness
1. Commodity price risk
2. Exchange rate risk
3. Spare part expensive
Ford Strength:
1. Strong brand portfolio
2. Strong engineering capability
3. High network of distributors and dealers
4. High employee productivity
Weakness:
1. Continue decline market share
2. Product recall
3. Declining operating efficiency and weak returns
General Motors (GM) Strength:
1. Branding
2. World wide presence
Weakness:
1. Diminishing dealer network
2. Insufficient liquidity
Reva Strength:
1. Environment friendly
2. Low energy cost
3. Low maintenance cost
Weakness:
1. Luggage space
2. Low interior quality
3. Metro car
Strategic Group
Two-wheelers Bajaj, Hero Honda Two wheelers efforts so consumer do not upgrade to
car
Top Player Hyundai, Maruti Exisiting player in the segment e.g. Maruti 800/ Alto,
i10
New Entrant Ford, Nisan Nisan Renault, Ford Figo
Environmental Reva Fuel efficient/environment concious
Competitive Strength Grid
Rating Scale:
3: Above Average
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6. 2: Average
1: Below Average
Assets and Competencies Maruti 4 Wheeler Two Wheeler NANO
Product and Service Quality 2 3 1
Product Differentiation 2 3 2
Market Share 3 3 1
Financial Capacity 3 3 3
Quality of Management 3 3 2
Distribution Channel 2 3 1
Brand Recognition 3 3 1
Advertising and promotion 3 3 2
Market Analysis
Market Size
Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
No. of vehicle
1,061,572 1,143,076 1,379,979 1,549,882 1,552,703 1,951,333 2,520,421
sold
Emerging sub market
1. Financing market
2. After sales service centers
3. Accessories manufacturing organization
4. Lubricants Market
5. Fuel market
Market Growth:
1. Market of Indian Auto Industry is in Growth Phase.
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7. Factors Affecting sales levels:
1. Rate of urbanization
2. Increasing disposable income
3. Car being a kind of status symbol
4. Increasing number of nuclear family
5. Road becoming unsafe for two wheelers
6. Increasing number of workingwomen.
Segment with high unrealized potential:
1. Lower middle class income group.
2. Rural population
3. Students
Profitability Analysis
. THREAT OF NEW ENTRANTS (High)
Price: To maintain of the lower cost of the final product pricing is difficult for the companies.
Entry cost: High Capital investment and expertise is required.
2. BARGAINING POWER OF BUYERS (High)
Variety of choices: products availability
Product differentiation: price, durability and brand equity
Profitability: Easily available finance options
Quality: safety measures, efficiency and mileage, warranty
Customer density: growing middle class, raise in standard of living, urbanization
3. DEGREE OF RIVALRY (High)
Competitors: Multinationals players and domestic (aggressive and strong) industries with
strategic alliances.
Brand image: Existing industries Brand equity influences the customers.
Switching cost: Cost of new entrants is high. (High fixed cost)
4. THREAT OF SUBSTITUTES (High)
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8. Second hand cars
Bike, moped, scooters
Efficient public transportation
5.BARGAINING POWER OF SUPPLIERS (High)
Increasing trend of input cost (like steels, iron)
Concentration on limited suppliers
Organization/ cartelling
Distribution
- Booking stands in different places
- Outlets in cities
- Clubs & Showroom in cities
- Supermarket & Big Bazar
Market Trends
- Shifting to compact car because of traffic congenstion
- Two wheelers shifting to four wheelers for status, safety and weather protection
- Increasing demand of fuel efficient car due to hike in fuel price and shortage
- Demand of environment friendly car
- Increase cost of production because of raw material hike
- Growth Vehicle market due to urbanization and economic growth
Key Success factor
• Marketing
• Advertising
• Affordable
• Safety measure
• Fuel-efficient
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9. • Product differentiation (first mover advantage)
• Innovation
• Technology
Environmental Analysis
Environmental analysis:
Source Description Strategic Time Importance
Implication Frame
Technological Indian auto car industry must to go for Tata Nano used the Med-high
alternative source of energy; they need concept of
to make fuel-efficient and environment Disruptive
friendly cars, et. They also need to Technology which
improve the safety technology. was
cheaper than
existing
Technology.
Regulatory Government is still having very high Very limited Low
import duty on cars. Indian carmakers
face less competition from their foreign
competitors.
Economic India’s average income is increasing Introduction of High
resulting to high disposable income. cheap car. First
Increasing inflation though creates a mover advantage.
challenge before the manufacturer to
keep their prices unchanged even when
their own cost is going up.
Natural Decreasing raw materials and sources of Medium
bio - fuel for auto car industry. Coal
prices have gone higher and iron-ore, the
main raw material is also affected by high
inflation.
Demographic India’s growing population creates a huge Targeted middle High.
and growing market segment that can be class and lower
targeted for such products. More and income group
more population is moving to the cities. segment. First car
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10. Most of the population is young, buyer segment.
increasing literacy and income further
favors the auto car industry.
Threats Growing competitors and emergence of Medium –
complete green cars which do not High
consume fuel and work on alternate
sources of energy
Opportunities Demand for less expensive cars due to Economic car High
the recession and growing immigration
population which falls in the low to
medium income group
Growth strategies of Tata Nano:
The growth strategies used by tata for nano is a related product diversification strategy where they
develop a new product for the new market.
Asset and Competencies:
Sustainable competitive advantage:
- Innovative actions
- Value creation
- Costly to imitate
Internal Analysis
Performance Analysis
Profitability: not profitable business. Sales of 15000 units are requiring for breakeven. However sales
never been BEP point any month till may, 2011.
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11. Sales
Shareholder Value Analysis:
SWOT
Strength: Weakness:
- First Innovation- Set a benchmark - No Modern facilities-ABS,PS,AC etc
- 41 Patents for innovations - Less Boot space
- Low Price & Stylish - No Headlight levelers
- Environmental friendly- Green house - Not fit for hilly terrain
effect - Poor traction control
- High fuel efficiency - Poor engine cooling & hence overheating
- Space- - Small Tyres Windows wind down by hand
Internal-21% more than M-800 - No passenger side mirror
External-8% less than M-800 - Lesser safety as fuel tank is right under the
- Variometric gear system- Magnifies torque fuel tank
- Tested successfully for crumple zones
- TATA brand - globally renknown
Opportunity: Threat:
- Created a Niche market - New competitor – Bajaj, Chery, Honda Siel,
- Diesel & Electric variant GM etc. REVA an electric car.
- Recession - Traffic congestion.
- Royalty - Government may increase taxes in metros.
- Developing low price engine oil - Rising cost of raw material.
- Auto Finance - Reducing Parking Space.
- Increasing Percapita Income - Strict European Safety standards
18,884 in 2002/03 to 38,084 in 2008/09 - Bad impression due to delay in lunch in
- Market share of two wheelers is 76.5% Market
- Trend selecting compact car - in city area - Cheapest car image
traffic congestion is high. - Environmental awareness products e.g.
- Fuel Crisis (people prefer fuel efficient Reva
compact car)
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12. Internal Analysis
Performance Analysis
Objective Area Objective Status and Comment
Sales To find out the sales and the US$ 67.4 billion in 2009-10,
trend in the sales of the with 57% coming from
company as a whole. abroad. (US$ 27 billion from
commercial vehicle). Between
1954 to 2011, has sold over
5.9 vehicles in India; largest
private corporate group in
India in terms of market
capitalization and revenues.
Products exported to 85
countries
Profit ROA = profits/sales * Retained earning = An average
sales/assets of INR 23,327.74 millions from
2007 to 2011
Quality/Service Whether the organization has 2009 annual survey by
been able to provide quality Reputation Institute ranked
goods and services; TATA group as the 11th most
reputable company (out of
600) in the world.
Cost
New Products First mover advantage Pioneer in establishing and
financing numerous quality
researches, educational, and
cultural institutes in india.
Customer Satisfaction Among the top three in
passenger vehicles in india.
People 395,000 people employed
worldwide
Other Has operations in more than
80 countries across six
continents; Carnegie Medal of
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13. Philanthropy awarded to the
group in 2007 for its long
history of philanthropic
activities.
B. Summary of Past Strategy
• Focus on INR 1 lakh car
• High publicity and hype on the car
• Sale of application form (INR 300) for booking the cars.
• Low cost strategy
C. Strategic Problems
• Exit from Singur due to land acquisition disputes
• Financing not easily available to buy the car
• Too much focus on “Cheap Car” rather than an “affordable car”
• Booking of the cars were 95 % of the car’s ex showroom price, which was
unaffordable to the target customers
D. Characteristics of International Organization
• Indian multinational conglomerate
• In the fifth generation of family stewardship
• Largest private corporate group in India in terms of market
capitalization and revenues.
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14. • Tata groups has been spread over various industries such as
communications and information technology, engineering, materials,
services, energy, consumer products, and chemicals.
• Tata group consisted of 114 companies and subsidiaries in eight
business sectors, 28 of which were public listed companies
E. Portfolio Analysis
Market share
• Tata groups has been spread over various industries such as
communications and information technology, engineering, materials,
services, energy, consumer products, and chemicals.
• Tata Steel, Tata Motors, Tata Consultancy Services, Tata Technologies,
Tata Tea, Tata Chemicals, Titan Industries, Tata Power, Tata
Communications, Tata Sons, Tata Teleservices, Taj Hotels
F. Analysis of Strengths and Weakness
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15. Strengths
• Strong Brand Name
• Strong Research and Development
• Strong Financial Back-up
• Operations in more than 80 countries across six continents
• Leader in commercial vehicles and among the top three in passenger
vehicles in India
• World’s fourth largest truck manufacturer and world’s second largest
bus manufacturer
• “India’s most valuable Brand” in an annual survey conducted by ‘Brand
Finance’ and ‘The Economic Times’.
Weakness
• Low interior quality in their overall automobile segment
• Return on investment in Tata motors shares is low.
• Tata motors not able to meet safety standards in their vehicles.
• Tata motors has not been able to get a foothold in the luxury segment in
the domestic market.
G. Financial Position Based on Existing Strategy (Tata Motors)
Financial Highlights (in Rs. Billion)
Mar’ 11 Mar’ 10 Mar’ 09 Mar’ 08 Mar’ 07
Operating 480.25 353.73 256.61 287.68 266.64
Income
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16. Cost Of 432.54 313.40 239.38 257.37 240.78
Sales
Reported 18.11 22.4 10.16 20.29 19.13
Net Profit
Retained 22.79 29.34 20.54 23.83 20.14
Earnings
Customer satisfactions:
Determinants of Strategic Options
Strategies previously used by TATA
- As read in the news paper, Tata's are making money just from the Application form sale.
Rs 300 form will be filled by more than 20 million(expected by me) people of India. Think
of the amount he will get, which is non refundable. Additionally, Ratan Tata is asking for
booking amount, with the form. He will keep the amount with him till the time allotment is
not done. The minimum amount is 95K, again multiply the figures, it will run into billions.
- Focus on the “Rs. 1 lakh” car.
Strategies at present used by TATA
- Addressing safety issues and convincing the customers. the new safety features were
installed for the already sold cars
- Easy financing was made available to the customers; their own financial branch, Tata
Motors Finance made loan easily available within 72 hrs. Entered into financial
arrangements with different financial institutions.
- With the motive to reach out to the semi urban and rural areas, it established “F Class
showrooms” which were abt 500 sq. foot unlike the other 3000-4000 sq foot showrooms.
It also made it available in supermarkets through selected Big Bazar outlets
- Marketing communication through emotions and sentiments through TV visual media –
sentiments of anticipation and joy surrounding the arrival of Nano into a family.
- The Company’s Vice President R Ramakrishna stated that firm has
taken initiatives to tap various sections of the target consumers and
are also working towards revising the perception that the ‘Nano is a
poor man’s car’.
- “Quite a lot of marketing activity is in place now – reaching out to the
target segments; network strategy; handling the customers at the
dealerships ; tie-ups with various financiers.
Sources reveal that exclusive showrooms in Tier-III and Tier-IV cities across
the country are being set up by Tata Motors in order to sell Nano. This move
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17. has been planned as according to the firm a typical Nano buyer feels
apprehensive in reaching out to a to a full-fledged car showroom.
Approximately 105 exclusive Nano showrooms and 250 special kiosks have
been step up by Tata Motors in order to push the sales of Nano apart from
the existing showrooms that the firm has. As of now the firm has
approximately 750 outlets across the country from where customers can
have an access to Nano.
- The firm is targeting multiple segments for Nano and it is working on
different marketing strategies for different consumers of different age
groups.
Possible Solutions
- Product Attributes
- Value Proposition
Supporting evidence
- Higher market share of compact car (47%)
- Lower number of competitors, with power as it has first mover
advantages
- Profitability ration shows profitable
- Market size is big and growing. Trend is leading toward compact,
fuel efficient and economic segment.
- TATA as company demonstrate sufficient assets
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