Positioning Dilemma Facing Tata Motors - Case Study Example

Case Study Analysis: Positioning Dilemma Facing Tata Motors Name: Course: Presented to: Date: Background This paper presents an analysis of a case study of Nano, a car produced by the Tata Motors Ltd (TML), an Indian leading automobile company. The case addresses the positioning dilemma facing TML and other issues affecting the performance of Nano in India. The aim of the analysis is to find out how Nano should be positioned in order to increase sales and take advantage of the production capacity that is available currently. To achieve this, this paper analyzes the Indian automobile market, level of competition that Nano faces, external and internal environment factors influencing the performance of Nano and the available strategies to counter some of the negative influences of the external environment. TABLE OF CONTENTS Background 1 Problem Statement 3 Market Analysis 4 Competitive Analysis 4 External Environment Analysis 4 Internal environment Analysis/SWOT analysis 6 Strengths 6 Weaknesses 6 Opportunities 6 Threats 7 Strategic Alternatives 7 Fit and Attractiveness Analysis 7 Conclusion/Recommendations 7 References 9 Appendix 1: Market Analysis 10 Appendix 2: Competitive Analysis 11 Problem Statement In 2009, TML launched Nano, the smallest car in the world. According to the chairman of the Tata Group, Mr. Ratan Tata, TML aimed at building a low-cost car that would be affordable to the rapidly expanding middle class in India. TML made promises promised that Nano would be more appealing than all other small cars produced locally and internationally and set the bar so high that it would not be easy for competitors to match (Tybout, 2011a, p. 1). Specifically, the Nano was positioned as the low-priced car selling at Rs. 1 lakh and the safest means of family transport. However, after it was launched, Nano swerved from one crisis to another and failed to meet industry expectations. As indicated in the case study, the price for Nano models was raised to an average of Rs. 1.5 lakhs in 2010, sparked by the increase in the cost of raw materials (Tybout, 2011b, p. 1). This led to a reduction in the price difference between Nano and other low priced cars in India. As well, a few cars caught fire, raising questions about the safety of Nano. This affected the positioning of Tata Nano as the safest and lowest-priced car in India. Among other issues, these have led to a huge slump in Nano sales, but production capacity has remained higher. TML needs to take advantage of the available production capacity by adopting strategies that would help in expanding Nano sales. Among other strategies, TML should stick to the cost leadership strategy and find ways of improving the quality of Nano. Nano should be positioned as a utility rather than a cheap car as it was initially positioned. Market Analysis The case study indicates that there is a potential market for Nano in India, which is expected to increase over the next 10 years. Nano largely targets the middle class group which has expanded at a high rate recently, sparked by the rapid growth in Indian economy (Tybout, 2011a, p. 7). The incomes of the Indian households are also expected to increase, leading to an increase in consumer spending on transportation. Generally, the current and future prospects of the Indian automobile market are favorable to Nano. (See appendix 1 for detailed information about Indian automobile market prospects) Competitive Analysis The Tata Nano has been facing stiff competition from local and foreign companies. The Maruti car has been producing low cost cars which have been the best selling in the Indian market, even after the launch of Nano (Tybout, 2011a, p. 6). Various foreign companies have also promised to produce more appealing low-cost cars to compete with Nano. Apart from the four-wheelers, Nano has been facing stiff competition from two-wheelers, especially because they are easier to maneuver and are less expensive to operate. In short, the level of competition that Nano is being faced with in the Indian market is high (Tybout, 2011a, p. 26). (See appendix 2 for detailed information about the Nano competitive position) External Environment Analysis One of the major political challenges that Tata Nano has faced is that the government of West Bengal forced farmers out of their land for TML to build the a factory at Singur, without compensating them (Tybout, 2011a, p. 4). As construction at the site was underway, the peasants whose land had been seized started protesting. Eventually, TML abandoned the Singur site and moved to another site in the state of Gujarat. As a result, TML incurred huge financial losses and the launching of the Nano was delayed (Tybout, 2011a, p. 1). Apart from these, this issue tainted the reputation of Tata Motors, which negatively affected Nano sales. Further, an increase in the cost of raw materials in 2010 led TML to increase the prices of Nano models to an average of Rs. 1.5 lakhs from the initial prices (Tybout, 2011b, p. 1). This led to a reduction in the price gap between Nano and other low-priced cars. Among other factors, this led to a significant drop in sales for Nano. As well, this affected the positioning of Nano as a low-priced car. However, the economy of India has been growing at a high rate over the last two decades and is expected to continue in the same trend for the next more than 10 years. In line with this, market for the Nano is expected to rise, sparked by the increasing household incomes and the expanding middle class in India (Tybout, 2011a, p. 7). In addition, TML has an opportunity to expand the Nano to the foreign markets following great steps leading to liberalization of restrictions on private companies and regulations on foreign trade by the Indian government since 1992 ((Tybout, 2011a, p. 3). India is densely populated with 2008 statistics showing that there were approximately 1.1 billion people, with a median age less than 25 years (Tybout, 2011a, p. 6). Though household incomes have been rising, the purchasing power of Indian consumers remains low, and hence, they prefer low-priced products. However, some consumers prefer larger cars than the Nano (Tybout, 2011b, p. 2). In fact, a sizeable proportion of Nano buyers purchase it as a second car for a wife or college children. Lastly, Nano is an environmentally-friendly car and has been rated as the most fuel-efficient car in the world. However, concerns have been raised that the low price of Nano might lead to too many cars on the roads, leading to congestion and increased rate of air pollution (Tybout, 2011b, p. 2). Generally, the political and economic factors are unfavorable to the Tata Nano while the social and environmental factors have moderate effects. Internal environment Analysis/SWOT analysis The following is an analysis of the strengths, weaknesses, opportunities of the Tata Nano as indicated in the case study. Strengths The low price of Nano is a major strength which created sensational in India and other parts of the world. Secondly, the production capacity for the Nano that is currently available is high and can withstand higher levels of demand. Also, TML has a strong marketing and sales and distribution networks for the Nano in India. Other strengths include fuel efficiency and ease in handling (Tybout, 2011a, p. 4). Weaknesses The increase of prices of Nano models to an average of Rs. 1.5 lakhs was a major setback to customers. Also, a few technical problems were found in Nano with a few cars catching fire. This further weakened the trust of consumers on Nano brand (Tybout, 2011b, p. 1). Tata also adopted a wrong marketing strategy that emphasized on the cheapness of the Nano rather than the basic but appealing qualities of this car. This slightly deterred consumers who could afford higher-priced cars. Opportunities Though Nano was targeted on the sprouting middle class, it is also bought by people who already have one or more cars (Tybout, 2011b, p. 2). This consumer segment provides an opportunity for the expansion of Nano sales in India. Therefore, new marketing strategies should aggressively focus on this market. The expansion of the middle class and increase in household incomes is also rays a new hope for TML to increase Nano sales in India. Threats Low-priced upcoming small cars such as the Maruti Also are a major threat to further growth in the market share for Nano. Two wheelers also pose a threat to Nano since they are perceived as less expensive to operate and are easier to maneuver (Tybout, 2011a, p. 6). Other manufacturing companies started working towards producing alternative cars to the Nano. These cars will pose a great threat to the Nano once they arrive in the market. Strategic Alternatives There is a need for TML to come up with a clear marketing strategy for Nano. This company can choose to retain the cost-leadership strategy and explore ways to improve the quality of Nano or retain the current quality and focus on reducing the product’s current price. Fit and Attractiveness Analysis As mentioned, Nano is often bought by people who own one or more cars. The best option is to focus on the cost leadership strategy and but position itself as a utility rather than a cheap car. To achieve this, TML should explore ways to improve the quality of Nano but retain lower prices than other low-priced cars. Conclusion/Recommendations It is evident from the Tata Nano case study that the rapid rate of growth of the economy in India coupled with an increase in household incomes has led the Indian automobile sector, especially market for small cars, to become one of the most competitive sectors at present. The market analysis shows that Nano had the potential to become the best selling small car in India. However, as noted in the external environment analysis, this car has been faced with major crises, making it difficult for it to meet industrial expectations. One of the major crises, as mentioned in the case study, is financial loss and loss of reputation caused by the issue surrounding the land that was seized by the government for TML to build a factory in West Bengal. Secondly, a few cars caught fire, raising concerns about Nano’s safety. Also, increased material costs led TML to raise the price for Nano. This affected the product positioning of Nano as a low-cost and safer car. As a result of these issues, Nano has lost a significant share of the Indian automobile market to close competitors. Despite the difficulties, there are several strategies that can help to increase Nano sales and hence, take advantage of the high production capacity that is currently available. First, the brand image of Nano needs to be cleared. After receiving information about the fire incidences, TML responded by reassuring consumers regarding the safety of Nano by offering to retrofit those that had already been bought and by extending warranty period. Though it is a difficult task, TML should work more aggressively to improve its public relations and try to show that the occurrences were caused by external factors and not flaws in Nano’s design. The company should also avoid engaging in controversial issues such as the land issue in West Bengal. In addition, TML should explore other markets in other countries where Nano can be sold without the influence of the bad image it has earned in India. Secondly, a clear marketing strategy for Nano needs to be defined targeting specific consumer segments in India. The best option is to explore ways to improve its quality and retain the cost leadership strategy. Generally, Nano should be positioned as a utility, rather than a cheap car as it was initially positioned. References Tybout, A. M. (2011a), positioning the Tata Nano (A), Kellogg School of Management Tybout, A. M. (2011b), positioning the Tata Nano (B), Kellogg School of Management Appendix 1: Market Analysis Available data indicates that the Indian automobile market has been evolving, driven by a rapid growth in the national economy. As indicated in the case study, the rapid economic growth in India for the last two decades has led to an increase in disposable incomes among Indian population and the sprout of sizeable middle class with a disposable income of Rs. 200,000 to Rs. 1 million (Tybout, 2011a, p. 6). Approximately 5 percent of Indian population was middle class in 2005, and it is expected that this figure will rise to 19 percent in 2015 and 41 percent in 2025. As income for households in India rises, it is expected that spending on transportation will increase. In 2005, spending on transportation accounted for 17 percent of household income and this figure is expected to rise to 19 percent by 2015 and 20 percent by 2025. Car purchases are expected to increase as household income rises. Despite the growth in incomes and expansion of the middle class, purchasing power among average consumers is low and most consumers look for the cheapest products available. Being a low-priced car, Tata Nano was envisioned as a four wheeler car that is affordable to a large section of the middle class in India. Therefore, the market for Nano is expected to increase in India with the increase in household incomes and the expansion of the middle class (Tybout, 2011a, p. 7). Appendix 2: Competitive Analysis The closest competitor of Tata Nano is Maruti 800, a small car pioneered by Maruti Suzuki. Since 1983, Maruti 800 remained as the smallest car in India until 2008 when Tata Nano was launched (Tybout, 2011a, p. 6). As such, it was the most affordable car in India during that period. However, the price Tata Nano is half that of Maruti 800, making it much more affordable compared to the latter. Maruti also produced four compact-car models, namely, Swift, Wargon R., Alto and Zen. These cars held the biggest share of the compact-car market in India between 2005 and 2008. These cars have continued to pose stiff competition to the Nano even after it was launched. For instance, the sales for Maruti Also reached 30,000 units while Nano sold just 509 units in 2010. Thus, the Maruti cars can be considered as important competitors of the Tata Nano. After the launch of Nano, Toyota, Hyundai, Maruti, Renault Nissan, Ford and Habiob Motors stated that they had plans to release cheap cars that would compete with Tata Nano during the following years. In their statements, these companies stated that they would include features that would make their cars more luxurious than the Tata Nano though with slightly different prices. These cars are also expected to pose stiff competition to Nano (Tybout, 2011a, p. 6). Apart from the four-wheeler cars, Tata Nano has been facing competition from two-wheeler automobiles produced by companies such as Bajaj auto, Hero Honda Motors, Honda motorcycle and scooter and TVS Motorcycles Company (Tybout, 2011a, p. 6). The two-wheeler automobiles are cheaper than Nano, with some like Mopeds costing as little as Rs. 15,000. Apart from this, the two-wheelers are less expensive to operate compared to Nano since they have significantly higher fuel efficiency and low cost of maintenance compared to Nano. In addition, the two-wheelers are easier to maneuver, making them more appealing to some consumer segments such as college students. Generally, Nano faces high competition from both four-wheeler and two-wheeler automobiles (Tybout, 2011a, p. 6). Read More