Case II: Positioning the Tata Nano

1/21/13

36000 – 81; Professor Chintagunta

We pledge our honor that we have not violated the Honor Code during this assignment.

Mike Cook
Geoff Fallon
Tanya Fraser
Niti Gupta
Craig Murphy

Positioning the Tata Nano (A): Case questions

1. What sales goals would you recommend for the Nano?
2009: 50,000 Nanos
2010: 50,000 Nanos
2011: 400,000 Nanos
2012: 1,050,000 Nanos
We would recommend the above goals for annual sales of Nano’s based on current and projected production capacity. This includes the 50,000 cars ready to go in the temporary plant during the years 2009, 2010, and 2011. The first of 3 new plants with 350k capacity each would go live in 2011 with 2 additional plants going live in 2012. These numbers are not unrealistic with the middle class (incomes between 200k and 1 million) targeted to grow from 55 million in 2005 to 64.5 million in 2015 creates a lot of opportunity for this new low priced car. This low priced car that will be about the size to fit the average Indian family size that is slightly greater than 5 persons creates a market to go after both the motorcycle market that can cost up to 75k and has annual sales of roughly 6.7 million and is growing roughly 5% annually. Although these are aggressive sales goals, the fact that the market is growing at the rates above and that the margins of 15% are so low make it imperative to capture market share. It is important to capture market share as quickly as possible in this ULC (ultra low cost) car market where several other companies are looking to enter in the near future. That is another reason why it is important to max out manufacturing capacity to minimize operational costs to help maintain margin.
Data:
Passenger Vehicles 1.8 million annually (16% vehicle sales annually)
Nano 95k, 120k, 140k
Maruti 800 roughly 200k
2 wheel sales 8.4 million annually (76% vehicle sales annually)
Motorcycles 35k - 75k (80% 2 wheel sales)
Mopeds 15k (20% 2 wheel sales)

2. Which segment would you target: (i) owners of motorcycles? (ii) consumers aspiring to car ownership? Or (iii) a specific group like college students, or upper income households looking for a second car? How does this choice square with the sales goals in 1.?
We would target consumers aspiring to car ownership.The passenger vehicles sales volume is low (16% of total vehicle sales) and has a low penetration in the current market (only 12 car owners per 1,000 people in India versus 765 and 426 in United States and United Kingdom respectively) due to high price, less fuel efficiency, high maintenance costs and size which makes them difficult to maneuver in the crowded city streets. Nano is the solution to all these problems and would best cater to this segment to reach the maximum sales level that is also our goal. Nano is the cheapest car in the market and is fuel efficient and has a smaller size.
Targeting other segments would result in tougher competition and harder to achieve the sales goals we have mentioned in our first answer. Motorcycles have higher sales volume as they are cheaper, less expensive to operate and lower maintenance costs. Also their maneuverability makes them a favorite among college students. Upper income households looking for a second car would probably not prefer Nano due to heightened noise level and maintenance could be difficult considering that it is a new car with entirely new engine.

3. Think of various benefits that the Nano can provide – size, operating costs, price, safety etc. How does the Nano compare to the “competitive set” for each of the above segments along these benefits?