Tata nano - can gain momentum

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Tata nano case analysis

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Tata nano - can gain momentum

  1. 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. 175,000The 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 thatcould previously not afford cars.External AnalysisCustomer Analysis in the Budget Car SegmentCustomer Segment Segment User IntentionEntry-Compact Lower price, 47% Tata Nano, MarutiCar small cars Alto, Ford Figo, Maruti WagonR, Hyundais Santro, i10 and Eon and GMs BeatPremium-Compact Higher 11% MarutiCar priced, Swift, Hyundai i20 probably and VW Polo second car 1
  2. 2. SUV Sport lover 23%Luxury Sedan Luxury, 19% Hyundai Verna, VW Rick Vento and Chevrolet Cruzehttp://timesofindia.indiatimes.com/business/india-business/Small-car-loses-appeal-with-market-share-dipping-below-50-SUVs-surge/articleshow/11864524.cms 2
  3. 3. Customer Motivation Segment MotivationEntry-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 assetsSUV Speed, Safety, ReputationLuxury Sedan Luxury, ReputationUnmet needs 1. Expensive than what was earlier promised 2. Safety Issues 3. Not environmental friendlyCompetitor AnalysisCompetitor IdentificationBajaj, Chery, Honda Siel, GM etc. REVA an electric car.Global Players in India:Segments Companies 3
  4. 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 ToyotaTwo-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 YamahaMajor competitorsMaruti 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 shareHyundai Strength: 1. Quality advantage 4
  5. 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 expensiveFord 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 returnsGeneral Motors (GM) Strength: 1. Branding 2. World wide presence Weakness: 1. Diminishing dealer network 2. Insufficient liquidityReva Strength: 1. Environment friendly 2. Low energy cost 3. Low maintenance cost Weakness: 1. Luggage space 2. Low interior quality 3. Metro carStrategic GroupTwo-wheelers Bajaj, Hero Honda Two wheelers efforts so consumer do not upgrade to carTop Player Hyundai, Maruti Exisiting player in the segment e.g. Maruti 800/ Alto, i10New Entrant Ford, Nisan Nisan Renault, Ford FigoEnvironmental Reva Fuel efficient/environment conciousCompetitive Strength GridRating Scale:3: Above Average 5
  6. 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 SizeYear 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11No. of vehicle 1,061,572 1,143,076 1,379,979 1,549,882 1,552,703 1,951,333 2,520,421sold 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. 6
  7. 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. StudentsProfitability 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 availabilityProduct differentiation: price, durability and brand equityProfitability: Easily available finance optionsQuality: safety measures, efficiency and mileage, warrantyCustomer density: growing middle class, raise in standard of living, urbanization3. DEGREE OF RIVALRY (High)Competitors: Multinationals players and domestic (aggressive and strong) industries withstrategic 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) 7
  8. 8. Second hand carsBike, moped, scootersEfficient public transportation5.BARGAINING POWER OF SUPPLIERS (High)Increasing trend of input cost (like steels, iron)Concentration on limited suppliersOrganization/ cartellingDistribution - Booking stands in different places - Outlets in cities - Clubs & Showroom in cities - Supermarket & Big BazarMarket 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 growthKey Success factor • Marketing • Advertising • Affordable • Safety measure • Fuel-efficient 8
  9. 9. • Product differentiation (first mover advantage) • Innovation • TechnologyEnvironmental AnalysisEnvironmental analysis:Source Description Strategic Time Importance Implication FrameTechnological 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 9
  10. 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 energyOpportunities Demand for less expensive cars due to Economic car High the recession and growing immigration population which falls in the low to medium income groupGrowth strategies of Tata Nano:The growth strategies used by tata for nano is a related product diversification strategy where theydevelop a new product for the new market.Asset and Competencies:Sustainable competitive advantage: - Innovative actions - Value creation - Costly to imitateInternal AnalysisPerformance AnalysisProfitability: not profitable business. Sales of 15000 units are requiring for breakeven. However salesnever been BEP point any month till may, 2011. 10
  11. 11. SalesShareholder Value Analysis:SWOTStrength: 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 renknownOpportunity: 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) 11
  12. 12. Internal AnalysisPerformance AnalysisObjective Area Objective Status and CommentSales 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 countriesProfit ROA = profits/sales * Retained earning = An average sales/assets of INR 23,327.74 millions from 2007 to 2011Quality/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.CostNew 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 worldwideOther Has operations in more than 80 countries across six continents; Carnegie Medal of 12
  13. 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 strategyC. 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 customersD. 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. 13
  14. 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 companiesE. 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 HotelsF. Analysis of Strengths and Weakness 14
  15. 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’ 07Operating 480.25 353.73 256.61 287.68 266.64Income 15
  16. 16. Cost Of 432.54 313.40 239.38 257.37 240.78SalesReported 18.11 22.4 10.16 20.29 19.13Net ProfitRetained 22.79 29.34 20.54 23.83 20.14EarningsCustomer satisfactions:Determinants of Strategic OptionsStrategies previously used by TATA - As read in the news paper, Tatas 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 acrossthe country are being set up by Tata Motors in order to sell Nano. This move 16
  17. 17. has been planned as according to the firm a typical Nano buyer feelsapprehensive in reaching out to a to a full-fledged car showroom.Approximately 105 exclusive Nano showrooms and 250 special kiosks havebeen step up by Tata Motors in order to push the sales of Nano apart fromthe existing showrooms that the firm has. As of now the firm hasapproximately 750 outlets across the country from where customers canhave 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 PropositionSupporting 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 17

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