10/4/2010

PROJECT ON

TATA NANO

BANUMEENA. M | MBA (SS)

Introduction Tata has changed the age old thoughts through the innovation of the world's cheapest car. Tata Nano is economical and mechanically simple. Tata Nano's efficiency comes from including only those items that are necessary for basic transportation and eliminating the not so relevant ones i.e. having one part that can perform a task just as good as two components can do, thus resulting in cost savings. Tata also refrains from including unimportant items that are not feasible due to monetary reasons. Besides having the right parts to meet the cost objective, Tata Nano has adequate features that exceed current regulatory requirements and meet minimum safety standards. It has a sheet-metal body with strong passenger compartment equipped with safety features such as crumple zones, intrusion-resistant doors, seat belts, strong seats and anchorages. The rear tailgate glass is fixed to the body and tubeless tyres enhance safety further.

Features For making Nano available for ` 1,00,000 many cost reduction measures have been taken like:
One windscreen wiper and one side mirror instead

of two. Radio, air conditioner & power steering are not included. Instrument panel contains only basic features Fuel gauge is similar to that of the two-wheelersbasic, yet functional Metal body is not strong enough and it is joint with glue& not welding to save cost. In addition, Tata has come up with practical ways to reduce car weight and thereby trim down the overall cost. It uses comparatively small and light engine, a 623cc two-cylinder petrol engine made of aluminium, unlike conventional engines which are made out of cast iron. The engine of Tata Nano is strategically placed at the back of the car leaving the front section for luggage.

Other factors that contribute towards the weight reduction are the usage of hollow steering wheel shafts, plastic body panels and smaller tubeless tyres. As a result of these measures, Tata Nano weighs only about 590kg. Lesser weight and fewer parts mean less raw material and lower cost for Tata Nano. Model Versions At its launch the Nano was available in three trim levels:

The Basic Std priced at ` 123,000 has no extras; The Deluxe Cx at ` 151,000 has air conditioning; The Luxury Lx at ` 172,000 has air conditioning and power windows

Market Response The Nano has affected the used car market in India, as many Indians may opt to buy a Nano rather than a used vehicle.

The new-car market is also being affected. Sales of new Maruti 800s, the second-cheapest car in India, dropped by 20% prior to the Nano's introduction. However the future owners of the cars are concerned about the fact that Tata Nano is built from scratch and most of the component parts are new and do not share platform with other models in the Tata family (though the cost of parts and services is likely to decline as more Tata Nano cars are driven on the road).

Competitors Response Direct competitors like Maruti, Hyundai, Bajaj and Cherry are concerned about the Tata Nanos overwhelming response. They have changed their strategies in the Indian market and some are planning to produce similar models to Tata Nano in the near future. Tata Nano is likely to encroach on the market territory of Maruti-800, which is priced higher than Tata Nano. Despite six percent shorter, Tata Nano has about twenty one percent more interior space than the Maruti 800 due to its larger height and width. Suzuki is aware of the gap and is working vigorously to improve its current car lineup. It will focus on achieving the practicality and efficiency of Tata Nana without compromising on safety and quality. However, Maruti Suzuki is not in a position to reduce the price of Maruti 800 just for the sake of competing with Tata Nano. Hyundai is another company taking Tata Nano seriously. Hyundai plans to launch a new model in the

market which would be priced cheaper than their current cheapest model-Santro.

Economic Parameters Demand function of Tata Nano is DTN = P, I, T, C, PU, PC, B, S Where: P Price of Tata Nano PU Price of used cars PC Price of competitor cars I Income demographics (Income class of customer) T Taste of consumer (preference of car to bike) C Cromo effect (Due to media hype) B Brand image (goodwill of TATA Co.) S Supply of Nano

Elasticity of Tata Nanos Demand For Tata Nano the demand in the market is inelastic (d <1) i.e., even if there is a huge change in price, there will not be a major difference in the number of customers.

PRICE OF NANO

NUMBER OF CUSTOMERS

Unless Tata reduces the price of Nano Rs.50000 or less there would not be considerable change in the number of customers who are willing to buy it. Similarly Tata Nano can very well increase the price of the car till 185000 or as per market conditions without the fear of losing the customers.

On Lowering the Cost of Car

Tata Nano cars basic model has been priced at Rs.

1 lakh. This price was decided after taking into consideration an excise duty of 16%. Due to 4% reduction in taxes as per this years budget plan, the Tata Motors Company would have a bit more room to reduce the cost of Nano in the coming months.
Since Maruti and Hyundai are a threat to Nanos

market, further reduction in cost can be made. However it should not be reduced extremely as it may the product seem inferior in quality to the customer.
Alternatively instead of reducing the cost even

more they can ensure that the on road cost of the car does not exceed `.100000

On Increasing the Cost of Car

As discussed earlier that the demand of the car is inelastic, the company can raise the price and improve on certain aspects like providing hand break.

On Increasing Production Capacity

The production capacity of the car must be increased as its supply plays a major role in Nanos demand function. Although Tata are gearing up their production capacity by 20% from 4500 units per month, it will not be enough to meet the rising demand or to capture the whole market before competitors launch. Tata Nano has to produce more than 20000 units per month to meet its demand. This can be done through steps like introduction of
Shifts, New Machines for production, Expansion of existing plant, Talks with Government for getting subsidies and

layout for producing more cars in return for employment