Solution TATA Ace case study

Ganesh Iyer

MMS-B, R.No.-85

1. Explain the following aspects of the case study in brief? (refer exhibit 1 and 2)

o Overview of the Indian Commercial Vehicle Sector

Commercial vehicle: A commercial vehicle is a type of motor vehicle that is used for

transportation of goods or passenger

Overview of Indian Commercial Vehicle Sector as per case study,

Indian Commercial

Vehicle sector

4-Wheelers

Sales for 2005-119877 units

Trucks, Pick-ups, Small buses

83% cargo 17% passenger

Payload-1.2-7.5tons

TATA motors (51%)

Mahindra & Mahindra (33%)

Swaraj Mazda (5%)

Eicher Motors(5%)

3-Wheelers

Worlds Largest Market

Sales 2005-307887 units

44% cargo 56% passenger

Payload -0.5-1.0 tons

Bajaj (51%)

Piaggio (26%)

Force Motors (8%)

Mahindra & Mahindra (7%)

2-Wheelers

motorcycles , mopeds, sccoters

cars &

sports utility vehicles (SUV)

Non Motorised Vehicles

Bullock cart

BIcycle Rickshaws

horse-drawn carriages

manully pulled carts

Major Manufacturers (Market share)

Segmentation of Commercial Vehicle Industry

Road Transportation Infrastructure in India

Inadequate and underdeveloped and needs rapid development

3.32 million Kilometre of road network out of which national highways network is only 66400

km. Out of 66400 only 7968km is four lane or above.

The maximum percentage share of total roads in India is by District and rural roads

Roads near retail outlets in urban areas in congested and narrow

Roads in rural India are poorly paved and lack markings.

Ban of three wheelers on highways due to slower speed and safety concerns

Roads transportation infrastructure in India as of 2015

India has the second largest road network in the world, spanning a total of 4.87 million

kilometres

India transport over 60 per cent of all goods and 85 per cent of total passenger traffic.

Indian Commercial Vehicle Industry

Gross Vehicle Weight (GVW)

LCV-Light Commercial

Vehicle

GVW < 7.5 tons

E.g TATA Ace . Mahindra Maximo

M&CV-Medium and

Heavy Commercial

Vehicle

GVW > 7.5 tons

E.g.Mahindra Traco

Application

GOODS PASSENGER

LCV passengers

Seating Capacity > 13

UTILITY VEHICLES (UV)

Seating Capacity< 13

Overview of the TATA Group and TATA Motors

TATA Motors

TATA motors was initially TATA Engineering and Locomotive Company (TELCO) established

in 1945

Tata motors together with Daimler Benz started manufacturing medium size commercial

vehicles in 1954 and set up an Indian research and development centre in 1959

Launched a four ton Tata 407 truck which became the top selling in the category

Launched Tata Indica in the year 1998 which received an overwhelming response in the

market

Began exporting Indica to U.K through M.G Rover

2003 TELCO was changed to TATA motors

TATA motors is the major manufacturer of passenger cars and commercial vehicles in India

2. Explain the Idea for the Ace and role of Market Research in finding the attractive

segment of LCV of less than 1 ton? (refer exhibit 34)

TATA Group

54 Operations

Countries

2,02,000 Employees

6 Continents 96

Operating Companies

$21.9 bn Revenue (2006)

120

Exports Nations

TATA

Group

(Business sectors)

1-IT & Comm 2-Engineering 3-Chemicals 4-Energy 5-Consumer products 6-Materials 7-Services

Idea for ACE

Tata Motors posted a loss of Rs.5 billion in 2001 added with a downturn of commercial vehicle

sector and absence of smaller than 2 ton vehicle threatened the company to develop a new

product.

As we can see from the exhibit 3 the Road density (paved highway (km)/ Area (km2)) is very

low for India so it was must for the automobile manufacturers to deliver a better vehicle then

three wheeler that could reach the remote areas having unpaved roads

From the second graph it is clear that the GDP per capita of India was very low which

recommended for a low cost vehicle to be launched

Three wheelers were banned from entering highways and heavy commercial vehicle in city

areas

The exhibit 4 shows that the requirement in the 750-1000kgs and 1000-1250kgs was diversified

and a new substitute was required which could do the work of both three wheeler truck and

pickup. This opportunity was by grasped by TATA motors through TATA ACE

Role of Market Research

Customer analysis to know the exact requirement

Market research revealed the different perspective of buying a LCV

Price at which the vehicle will be accepted by customer willing to buy below 1 ton LCV

Different criteria (safety, facilities etc.) for selection of vehicle was studied through research

Demand of the new product was studied

3. Explain the Functional and Customer Segmentation used for effective Segmentation

and Targeting Strategy adopted for TATA Ace? (refer exhibit 4 and 5)

Functional segmentation

Ace’s core market

750-1500kgs over 100-200 km distance

First Time Purchsers

40%

3-Wheelers

45%

Pick-up/LCV

15%

Percentage

Customer Segmentation

Performance sensitive customers were those

interested in Status, brand image and speed

and are willing to pay higher for features (AC,

metallic paint, and radio)

Balanced Perspective customers were

typically entrepreneurs and want vehicle that

justified itself on an ROI basis but also want

comfort and convenience to improve quality of

life.

ROI-sensitive customers were those who buy

on lowest cost per mile basis. Largely consist

of fleet owners

Acquisition Price Constrained customers are

those who lacked credit and financial means to

purchase slightly higher price car

7%

25%

55%

13%

Customer Type

Performance sensitive

Balanced perspective

ROI sensitive

Acquisition Price constrained

4. Explain the 4P's of Marketing Mix strategy used for TATA Ace?

•Overload capabilities were designed as per payload

•Two cylinder engine is designed based on the concept of Indica

•Engine is matched to the fuel efiifciency and speed demanded by the customer

•water cooled engine allowed more travel per day

•Rotary fuel injection pump designed to meet emission norms

•Highest safety norms achieved through Flat-face design

•Using existing facility and aggregate outsourcing, high performance car like product was developed

•Semi monocoque design resulting in low cost, high durability and a ride quality of a car.

•4-wheelers is hiigher status symbol in few rural areas

•Payload capacity 750kgs to 1000kgs

•More economical than three wheelers in the long run

•Less operating cost than the next best competitor (RS.6.70 perkm per ton vs Rs.7.88perkm per ton)

•27 % less operating cost than the segment average

•Financing offered through Tata's own financing firm

•Third party financers were ready to offer a 5-years loan (3-years for three wheelers) resulting to low monthly installments compared to three wheelers loans

•81.5% of material required was outsourced to keep the cost price low

•Targeted at Rs.2,00,000 whereas price of three wheeler is Rs.1,00,000-Rs2,00,000

•Well suited price for ROI sensitive customers

•Production done at underutilised plant in pune to reduce freight cost

•5 states in western and southern India, with strongest three wheeler demand targeted

•Ace distribution netwrok was benchmarked with two and three wheeler dealer network having sales and service outlay to cover more and more rural market

•New dealership format 1S (Sales) developed to increase the reach of TATA Ace

•300 distribution points set-up within three months

•"Suvidham" meaning convinience, a program launched to train existing rural mechanica free of cost to complete simple maintenance works of Ace

•Educate dealers in the operating-economics analysis

•Tag lines to emotionally attack customers, "feeling good about your job"

•"Free themselves" a marketing message for owners to highlight the new opportunities this vehicle could create for them compared to three wheelers

•Advertised as "India's first mintruck"

•Newspaper, advertising media involved for aggresive promotion

•Local language used for advertisement

•Ace "small is big " campaign to suggest the Tata customers the stability and trust of a big TATA truck in a small package

•A television ad created "Chinna Annai" Tamil word meaning "little elephant"to promote Ace

5. Explain the market launch and response of TATA Ace

Response of TATA Ace

TATA Ace exceeded the expectations of TATA Motors and its annual production target of

30,000 vehicles was sold in less than one year

54% of the customers were first time buyers, 33% previously owned 3-wheelers customers

and 30% had LCV suggesting that the launch was successful

Customers in the age group 25-35 were the first time buyers suggesting that Ace was

successful in attracting first time buyers

56% of customers were using Ace for intracity transport, 35% for intercity transport, 7% for

village to city transport and 2% for intervillage transport

In Jan 2006 TATA Ace won BBC Top Gear’s annual “Best Commercial Vehicle Design”

award.

6. Provide your key learning from the case study on how marketing strategy was

used by TATA Motors for the successful launch of TATA Ace

The marketing strategy should start with the requirement of a customer and then

designing a new-product or upgrading a new product as per customer need.

4 P’s analysis should be used to successfully market and launch a product

Demand estimation should be done through proper market research

Consumer behaviour should be studied

Sales strategy should be designed that is best suited for the product

http://www.ibef.org/industry/roads-presentation

Maharashtra

Tamil Nadu

Karnataka

Andra Pradesh

Kerala & Pondicherry

Market launch

Launched in May 2005

South and West India

were the initial launch

regions

Priced competitively at

Rs.2,25,000

25% of India covered

for initial launch