• Launched in May ‘05 at a price of ₹ 2,25,000 ($5000) and capacity of 0.75 tons2• Compactsize • Cost-effective• Shorter •Created aturning new productradius category • Met the annual sales target of 30,000 units in less than a year • Encouraged TATAs to double the production capacity
Indian Commercial Vehicle Sector Three wheelers India: World’s largest market in 2005 ₹ 1,00,000 ₹ 2,00,000 – 0.5 to 1 Tons 18 to 30 KMPL ₹ 4 to 5 per ton per KM
Market Share 8% 7% 8% Bajaj 26% Piaggio Force Motors M&M 51% OthersLow cost Ape: First to Minidor: Loyal Durable andalternative to a taxi offer diesel following in rural extensive sales andfor passengers engine markets service network
Four wheelers• Cargo usage accounted for 83% sales• Growth of 22% vs 14% in case of three wheelers Started at ₹ 3,50,000 1.2 to 7.5 Tons 9 to 10 KMPL ₹ 7 to 9 per ton per KM
Urban areas in 2006Poor delivery methods resulted in damaged goods,longer lead times and shrinkage
Rural areas in 2006• Roads were poorly paved and lacked markings• Farmers need not require large commercial vehicles to transport their harvest
Options for farmersThis resulted in spoilage and waste of time
Fuelonomics in 2006• High fuel prices and lower income made Indian consumers very cost conscious in their transportation decisions• Price of diesel was 70% of the price of gasoline on a per gallon basis GasolineDiesel
Diesel for goods transportation• Diesel engines were more efficient• Diesel was the preferred fuel
Government initiatives• Implementation of Bharat Stage III emission standards in 11 cities• Large-tonnage trucks were not allowed• 95% completion of Golden Quadrilateral, a 5800 kilometer highway network connecting the four major cities
A Journey… In 1954, it entered 1993: Formed joint into a 15 year In 1969, TELCO ventures withTata Engineering 1994: Formed joint collaboration with started designing Cummins Engineand Locomotive 1980: TELCO ventures with Daimler Benz, to and manufacturing Company to Company was launched the for Mercedes Benz to manufacture their own develop high- established in ton, 407 truck. market cars in medium-size commercialized horsepower & 1945. India. commercial vehicles. emission-friendly vehicles. diesel engines.
1998: Introduced the Tata 2005: Acquired 2006: Formed a Indica, the first 2004: Acquired 21% stake in 2002: Launched 2003: TELCO joint venture with large scale Daewoo’s Hispano the sedan model changed its name Marcopolo to passenger car commercial Carrocera, a variant, Indigo. to Tata Motors. manufacture indigenously vehicle business. Spanish bus buses in India. developed in manufacturer. India.
2001: ₹ 5 billion loss Largest ever for a private sector company –
Strategy ! • Cost reduction • Quality improvement • New-product introductionTruck penetration Per capita GDP & Road Density
> 45 ton <2 ton “cheap, nasty, rugged vehicle for India”
The Ace team!• Girish Wagh (30, then) + 5 full-time employees• 1st team to – Implement cross-functional teams for product development – Make extensive use of 3P (product preparation process)
Segmentation• Functional market segmentation – Ace’s core market: 750-1500 kg over 100-200 km Ace Customer Base 1st time purchasers 3 Wheeler 40% 45% Pick up/LCV 15%
Segmentation• Customer Market segmentation acquisition price performance constrained sensitive 13% 7% balanced perspective 25% ROI sensitive 55% Customer Type
Customers!• Performance sensitive: status, brand image and speed; willing to pay a higher price for features• Balanced-perspective: owner-entrepreneurs; justified on ROI + comfort and convenience• ROI-sensitive: lowest cost per mile of transport; fleet owners/operators• Acquisition price-constrained: future potential
Economics• More economical than a 3 wheeler in a long run• Operating cost economics: – Ace: ₹ 6.7/ton/km – Competitor: ₹ 7.88/ton/km – Industry average: ₹ 8.54/ton/km
Computer aided design Stress points – High strength steel Semi monocoque design: Low cost, highly durable, ride quality of a car !
4 cylinder diesel engine from an MNC? Developed 2 cylinder diesel engine based on Indica’s platform: Cost sharing, just the right performance, rotary fuel injection pump to meet emission standards without the electronics systemENGINE????? 1 cylinder less powerful diesel engine: three wheeler’s use it !!
Safety, Comfort and Aesthetics Customers preferred flat faced vehicle:M1/N1 Class safety norms Commercial vehicle look, more utilization of length which is otherwise ‘wasted’ Crash test simulations to make a fully safe flat faced frontal design !!
Sourcing and Production More outsourcing but less vendors •Could convert fixed cost into variable cost •Fewer risks to supplier •Tata motor’s wage rates were higher!! Aggregate outsourcing •Educate supplier in production and design process •Sole supplier for each part •E-sourcing: 20% cost reductionProduction at existing underutilized plant in Pune(west)•Tap Tata motor’s existing vendor base•Lower outbound freight cost: demand from southern andwestern states
MarketingEmotions Dealers were educated in operating – economic analysisA sense of ‘feel good for your job’ India’s first minitruckand ‘free yourself’Marketing materials in locallanguages Ace – ‘small is big’ Chinna annai (tamil) = little elephant
• Ace rollout in phases beginning with five statesin the western and southern parts of India –strongest three wheeler demand!• 1S dealership format – Responsible only forsales - Minimum infrastructure required• Within 3 months – 300 new distribution pointsset up• Suvidham – Avoiding service bay at dealerships– Training rural mechanics
• Team wanted to ensure the initial acquisition cost not to be a deterrent• Financing through its own arm• Several banks followed suit• Dealers educated customers about technicalities of financing• Third party financiers offered five-year loans instead of three-year loans
Market Launch and Response• Launched in May 2005, priced at Rs. 225000• Expectation exceeded – Sold annual target of 30000 in less than a year – Although available in only 25% of the country Post Launch Survey 33% Previously used three wheeler 30% Previously used an LCV 54% Buying first commercial vehicle Covered whole market!!!
Against the expectations of gaining popularity in rural areas, Ace usage was as follows: Usage 7% 2% Intra-city 35% Inter-city 56% village-to-city Inter-villageHowever, one expectation was fulfilled indeed – Overloading of Ace by approx. 30% of rated capacity
Export Market Strategy Emerging markets similar to India Emerging markets more developed than India Developed Markets Countries for expansion o Sri Lanka o Nepal o Bangladesh Electric Version for US, UK markets
Additional ConsiderationsPlant Resizing or New Plant
• Ace as a platform for New Product Development –