Information about the product: The Tata Nano is a compact car built by Tata Motors, targeting the Indian market. This rear-engine vehicle can accommodate four passengers. It is known for its impressive fuel efficiency, achieving approximately 78mpg on highways and around 92mpg in urban areas. The car made its debut at the 9th annual Auto Expo on January 10, 2008, held at Pragati Maidan in New Delhi, India. The Nano was commercially launched on March 23, 2009, following a booking period from April 9 to April 25. During this period, the car received over 200,000 bookings.
The car’s sales will commence in July 2009, with a starting price of Rs 115,000 (Rupees), which is roughly equivalent to UK£1,467 or US$2,421 as of June 2009. This price is lower than the Maruti 800, its primary rival and the second-cheapest Indian car priced at 184,641 Rupees. Tata aimed to create the world’s most affordable production car, with a starting price of Rs. 100,000 (approximately US$2,000 in June). However, price competition often harms the entire industry. NANO is currently the only player enjoying price freedom, but Maruti and Honda also plan to introduce their own cars in the market.
Within the same segment, the price competition will commence. The NANO car is analyzed through Porter’s 5 Forces Model, which examines the various factors influencing an organization and its potential for gaining a competitive edge. The concepts and frameworks developed between 1979 and the mid-1980s revolved around the notion that competitive advantage could be achieved by surpassing industry sector norms and achieving higher returns on investment.
Porter’s 5 Forces analysis examines external factors that influence competition within an industry, while also considering internal forces that impact how firms compete and the industry’s potential profitability. The analysis is conducted using Porter’s five forces framework. BARRIERS TO ENTRY include the time and cost of entry, which is crucial when launching a product in any market. The demand for small cars like the NANO is increasing, making its launch viable. The initial capital required to establish a new firm is high, reducing the chances of new entrants. Knowledge and technology also play a role, as patented ideas and knowledge provide a competitive advantage and create barriers to entry. TATA Motors possesses extensive knowledge and experience in the automobile industry, as well as technological advantages from recent acquisitions and mergers. Lastly, product differentiation and cost advantage are important factors for acceptance by customers.
Attractiveness can be measured in terms of features, price, and other factors. In the case of the NANO car, its price was one aspect that attracted customers. Additionally, the image and trust associated with the name TATA also played a role in attracting customers.
Government policies and expected retaliation can influence competition. While the government’s role is to preserve a free competitive market, regulations and restrictions can restrict competition. In the case of TATA Motors, the government attempted to promote their plant by providing land and tax rebates. However, unexpected retaliation from the local people during the plant setup resulted in significant costs for the company.
Access to distribution channels is crucial for the success of a new product. TATA Motors had an advantage in this area with its well-established distribution channels worldwide.
Switching costs play a role in customer decisions. If switching to another product is simple and cheap, customers may not hesitate to switch. However, in the case of the NANO car, the switching cost from a bike to a car is high, increasing demand for the car significantly.
The number of customers/volume of sales also impacts market dynamics. If there are only a few buyers, they have more power to negotiate and lower costs through bargaining.
Due to the abundance of choices available and the consistency of services among manufacturers, the Buyer holds significant power. This compels manufacturers to enhance quality, as seen with the case of the NANO car which offers a reasonable price tag without compromising on quality. The brand image of TATA and the segment in which the NANO operates is also highly appealing. On the other hand, a company requires raw materials, labor, and other resources from multiple suppliers for production.
If there are only a few suppliers of essential materials for a product, they can raise prices to maximize profits, which greatly affects industry profitability. The NANO car is an example where a limited number of suppliers have significant control over its price. With over 128 suppliers, the cost of building the NANO car mainly consists of parts provided by these suppliers. Furthermore, these suppliers offer a unique product or service with little competition.
The supplier industry is mainly controlled by a small number of companies. Some components of the NANO car are acquired from these suppliers who possess a significant market share and have limited substitutes. Therefore, the entire production process relies exclusively on them. •? Ability to substitute – Suppliers’ products have high switching costs. In many cases, even if substitutes are available, it is not easy to choose them as the subsequent product in the assembly line depends on it. If any change is made to a particular part, all the interconnected parts that rely on it would have to be modified, which is often impractical.
SUBSTITUTES •? Price band – Consumers may switch to a substitute product if its price increases or if the price of the NANO car decreases. This is important to consider as the main target customers, those switching from bikes to cars, may choose to stay with bikes if the car’s price becomes too high. Therefore, pricing is carefully managed. •? Substitutes performance – The success of the NANO Car is also influenced by the performance of the substitute sector.
If the price of the Bike segment increases or the price band of The small segment falls, it will have an effect on the quantity required in the market. This effect is not only based on the price but also on the features and other associated services, or it may be influenced by the status symbol story. The success of players like REVA in the electric car segment can also impact the demand for NANO. The willingness of buyers to purchase NANO car depends on products with improving price/performance tradeoffs compared to existing industry products. It will determine if buyers are willing to purchase NANO car. Customers’ willingness to try new products in the market, like Maruti 800 or Santro, is also a factor. In terms of competitive rivalry, this refers to the number and diversity of competitors in an industry.Currently, India’s small car market is highly competitive with players like Maruti Suzuki, Tata Motors, and Hyundai.Maruti Suzuki has historically dominated this market but with Nano’s launch, dynamics have shifted.In order to remain competitive in this market, other companies must either reduce prices or rethink their strategies.Price competition can lead to advertising battles that increase total industry demand but could be costly for smaller competitorsMoreover, firms are constrained in their pricing by similar-function products. Exit barriers encompass the obstacles encountered by a company when attempting to withdraw from a market, even if their product proves unsuccessful. TATA motors and their NANO product exemplify this phenomenon, as the substantial initial investment hinders an easy exit from the market. Regardless of the potential failure or lack of accomplishment for the NANO, discontinuing the product is not straightforward for TATA motors since they can still make use of the NANO production line.
By making a few modifications, the other products incurred a high cost, while for NANO, only a new product line was established. Product quality is often improved by extending consumer warranties or service. To remain competitive and cost-effective, companies constantly need to make manufacturing improvements, resulting in additional capital expenditure that reduces earnings. However, NANO enjoys a monopoly in its segment since there are no competitors.
