Connecting Business Marketing Research & Practice: Innovative product concept Tata Motors: The Tata Ace
For our topic of innovative product concept we chose a case study of Tata Motors from Harvard Business Review, Jan. 2008. It will be simply referred to as ‘the case study’. By that time the company was introducing its new innovative product – the Tata Ace and thus creating a new segment on the car market in India. We included additional information (web site articles, companies’ websites etc.) from that time to make the overview of the case complete. Our analysis is based on the market situation and the impact the innovative product had on it. Introduction Tata Motors is a subsidiary of Tata Group which is an Indian conglomerate, headquartered in Mumbai. It was founded in 1868 by Jamsetji Nusserwanji Tata. The conglomerate operates in more than 80 countries and is comprised of more than 100 companies. Tata Motors is one of the biggest vehicleproducing companies in the world and manufactures a wide variety of products including cars, trucks, vans, coaches, buses and military vehicles. According to the official financial statements, the net profit for 2005 was some 304 million dollars. Tata Ace is a small four-wheel commercial vehicle with a payload capacity of 1,000kg. It is one of the biggest company’s successes, for experts claim the small truck changed fundamentally the light commercial vehicle market in India by creating a new segment. Market overview In 2005, the Indian commercial-vehicles sector was comprised of three- and four-wheels vehicles. Mostly, they were used for cargo transport. The market segment was also including vans, cars and nonmotorized transport that were used for the same purpose. The three-wheeler transport is one of the most popular in India with its impressive 307,887 units sold for 2005. It’s suitable for city cargo transportation because of its maneuverability and low acquisition costs of max. $4,400. The vehicle could carry a load between 0.5 and 1 tons. With the low fuel consumption and operating costs this was a popular choice for city cargo transport. The main competitors of Tata and their market share are as follows: Bajaj 51%, Piaggio 26%, Force Motors 8% and Mahindra & Mahindra 7%. The segment of 4-wheel light commercial vehicles (carrying less than 7.5 tons) had almost 120,000 units sold in year 2005. The case study describes this segment as highly saturated, closely linked to the overall economic climate and more cyclical. The average acquisition price was significantly higher, starting at approximately $7,800 with twice as high operating costs as 3-wheelers and 2-3 times higher fuel consumption. The dominant player on this highly competitive segment was Tata 51%, followed by Mahindra & Mahindra 33%, Swaraj Mazda 5% and Eicher Motors 5%. One can presume that in general the vehicles market was quite well developed for the emerging Indian economy. There was a high level of competition, saturation and product differentiation. The customers were responsive to brand image and were price sensitive. Market liberalization policies during the 1990’s and the beginning of 2000’s had a stimulating effect on the industry. However, these reforms also bring threats in the form of greater competition (Murali et.al, 2011). This competition leads to a decline in the sustainability of superior profits (Hermelo, & Vassolo, 2010). The lowering profit margins stimulated Tata to come up with new and better products. All the Tata’s competitors had strong arsenal of market weapons, namely long-term strategies, costly advertising campaigns and competitive products. For Tata one can say as well that it had been acquainting market-oriented capabilities (Wan, 2003). According to Wan, companies in the emerging economies should put emphasis on developing dissimilar types of capabilities. Tata found one of the solutions by introducing the new Tata Ace to the market. The company...
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