Description
blue ocean strategy with the help of example of Tata Nano.
TATA NANO- A BLUE OCEAN
December 10
2010
Tata Nano- Team 005
Background
Between 1970 and 1984 cars were considered a luxury product; manufacturing was licensed, manufacturing was restricted; there were quantitative restrictions on import and a tariff structure designed to restrict the market. The market was dominated by 6 manufacturers - Telco (now Tata motors), Ashok Leyland, Mahindra & Mahindra, Hindustan motors, Premier automobiles and Bajaj auto. The decade of 1985 to 1995 saw the entry of Maruti Udyog in the passenger car segment. Economic liberalization, started in 1991, led to the delicensing of passenger car segment in 1993. This decade witnessed emergence of Hero Honda as major player in two wheelers and Maruti Udyog as the market leader in the passenger car segment. Situation in 2004-2005 The Indian automobile industry produced 8.5 million vehicles in 2004-05. During the financial year 200506, Indian automobile industry produced more than 9.5 million vehicles. The growth in production was 15%. Sale of passenger cars and utility vehicles has grown at 12% CAGR over the last decade. Two wheeler sales have grown at 11% CAGR during the last decade. Over the years sales of motor cycles has increased while sale of scooters and moped stagnated. With 5.82 million units sold in 2005-06(out of 7 million 2 wheelers), motorcycles replaced scooters as the preferred mode of transport. Visual Awakening (assessing the current environment) Factors market is currently competing on: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Fuel Efficiency Price Size Design Driving Pleasure Passenger comfort Durability Engine Power BHP Engine efficiency Interior looks Interior upholstery Latest features Colour variants After Sales service Spare Parts Safety features
Major Players: The below diagram shows the major players in the passenger car industry and their competing factors.
2|Page
Tata Nano- Team 005
Tata Indica Price Mileage (Highway) Mileage Seating Capacity Driver air bags Child Safety Locks Air Conditioner Tachometer Front Fog Lights Central Locking
Rs. 3,55,011 17.4 km/liter 13.6 km/liter 5 Person N Y Y Y Y N 475 IDI with Microprocessor based Engine Management System (ECU) 1405 cc 54PS @5500rpm 83Nm @2500rpm 5 Independent, Wish Bone type, with McPherson strut, Anti-roll Bar
Maruti 800
Rs. 2,15,203 19.9 km/liter 14.2 km/liter 4 Person N N Y N N N
Maruti Alto
Rs. 2,60,520 18.9 km/liter 14.5 km/liter 5 Person N Y Y N N N
Engine Type Displacement Power Torque Gear/speeds
In-Line Engine 796 cc 37.5@5,000 (PS@rpm) 6@2,500 (kgm@rpm) 4
FC engine 796 cc 47@6,200 (PS@rpm) 6.32@3,000 (kgm@rpm) 5
Front suspension
McPherson strut & coil spring
McPherson Strut with torsion type roll control device
Rear Suspension Steering type Front Brakes
Independent, Semi trailing arm with coil spring Coil spring Rack and pinion Manual Ventilated Discs Disc
Coil spring with three link rigid axle & isolated trailing arms Manual Disc
Source: Gaadi.com accessed on 8th Dec 2010
3|Page
Tata Nano- Team 005 Market Shares of major Manufacturers Total number of exports in April 05-06 23,043 68,374 12,105 31 9,928
Passenger Vehicles (PVS)
Maruti Udyog Hyundai Motors India Limited Tata Motors Honda Siel Cars India Ltd Ford India Pvt. Ltd.
From AprilNovember 04-05
From AprilNovember 05-06
Total Market Share (in %) 52.2 19.2 16.6 4.4 1.9
The Net Change between the period (in %) 8.1 20.2 -2.7 5.1 -30%
269,360 2,91,182 89,075 1,07, 066 95,402 24,348 23,186 15,026
th
24,348 10,512
Source: automobile India accessed on 8 Dec 2010
Visual exploration (looking beyond the Red ocean) AS IS Curve Based on the various common factors in the automobile industry we prepared a AS-IS curve to represent the existing market Strategy Canvas at the time of launch of Tata Nano. This curve gives an overview of what features were the various players competing on in the market.
4|Page
Tata Nano- Team 005
HIGH
AVERAGE
LOW
1. Who (profile) & where are the target/ desired non customers
Different Strategic Group within the same Industry and new buyer group
a. Many customers in the lower income group buy motorcycles for commuting and better fuel efficiency taking a risk with their safety. b. Sometimes, the whole family travels on a motorbike flouting all norms and safety regulations just because the other 4 wheeled modes of transport are out of their reach. c. Maintenance and after sales costs are unaffordable for these non customers. d. Non customers who dream of buying a car. e. Non customers who own a car and want to buy a second one.
Features which lead to change of preference (Buying of Motorcycle):
1. 2. 3. 4. 5. Higher Load bearing capacity Better fuel efficiency. Better Aesthetics Better Maneuverability in traffic. Easy handling.
5|Page
Tata Nano- Team 005 Two-wheeler domestic sales trend 2001-02 2002-03 2003-04 2004-05 2005-06 Motorcycles 2887194 3647493 4170445 4964753 5815417 Scooters 908268 825648 886295 922428 908159 Mopeds 408263 338985 307509 322584 332741
Source: automobile India accessed on 8th Dec 2010
2. How can a new market space being created a. New market space can be created by tapping the non customers who buy a motorcycle or plan to buy a motorcycle. b. Non customers who want to buy a second car. c. By tapping the emotional orientation of non customers who want to own a car but have low family income.
3. What are the changed competing factors appealing/creating value for the non customers (eliminated, raised, reduced, created)
ERRC Matrix ? ? ? ? ? ? ? ? ? ? ? Eliminate Air conditioner Fog Lights Air bags Child Safety Reduce Price Engine power Torque Driving pleasure Gear/Speed Suspension Interior Upholstery Raise ? ? Mileage Financing options
? ?
Create Rear engine Monthly Installments for payment
6|Page
Tata Nano- Team 005
Visual Strategy Fair 4. Can the offering create a new industry/ a new market space/ tap untouched market space thus making competition irrelevent? The offering, a new small car with a price tag of Rs. 1 lakh will create a new market space. No other competitor has conceived this idea and barriers of entry are high as this is a capital intensive industry.
5. Does competition have a comparable offering? No, competitors don’t have a comparable offering.
Tata Nano – An Innovation Or A Fluke Tata Nano is really a breakthrough in frugal engineering where innovation is driven by cost savings and sheer ingenuity. Nano's efficiency came from including only those items that were necessary for basic transportation and eliminating the not so relevant ones thus resulting in cost savings. Nano is much lighter compared to comparable models with limited features but still maintains Indian emission, pollution, and safety standards and provides an attractive fuel efficiency levels owing to innovative ideas. The innovation is not technology driven but surely a much futuristic way to look at to cater to the needs of many non-customers and potential customers over a period of time. The idea of Nano completely changed the paradigm shift of the automotive industry by thinking beyond the conventional wisdom of owing a car being a luxurious dream. The price of the car is what the customer pays in the beginning but later on, only the performance of the car matters. Beyond price, huge importance was given to the balanced design of Nano. Catering the three key requirements - cost, regulatory requirements and acceptable performance standards, Nano proved to create an entirely new blue ocean than still trying to fight it out in red ocean and thus contributing to company’s growth and success. As a part of strategy (this is just one example), Tata Motors filed for 34 patents associated with the design of the Nano in contrast to roughly 280 patents awarded to General Motors (GM) every year. The rationale behind the fact is that some of the most valuable innovations take existing, patented components and remix them in ways that more effectively serve the needs of large numbers of customers. Clearly, finding out ways to reduce cost do offer unprecedented value to the company and helps company in achieving profitable growth. Not only this, such ideas induce the competitors to
7|Page
Tata Nano- Team 005
think out of the box as well and thereby there are chances of seeing many more blue ocean scenarios in the market.
Go Beyond The Boundaries
As per the Society of Indian Automobile Manufacturers (SIAM), easy availability of finance and new models will keep automotive vehicle sales growing strongly in India.The Indian market, Asia's third-largest, is projected to triple over the next decade to six million cars a year from the current two million, according to industry estimates. Surely, there is a big enough market waiting for many players to enter in. Broadly speaking, the customers for this market can be divided into 3 categories: 1st tier Customers – people who own 3-wheelers / 4 wheelers 2nd tier Customers – people who own 2-wheelers 3rd tier Customers – people who don’t own any vehicle Certainly different groups have different choices and preferences. Like everyone else, Nano also had the same challenge to entertain the needs of different groups. Nano adopted its strategy to work on various paths to attract non-customers and potential customers which could be explained as below: Path 1 - Industry The strategy went beyond to think of the customers of the other industry. In this case, 2nd tier customers were clear targets which were actually the customers of 2-wheeler vehicle industry. Path 2 – Strategic Group The Nano offering created space within the existing customer base (i.e. 1st tier) along with 2nd tier group regarding repurchase of another car or a new car. Path 3 - Buyer Group The strategy focussed primarily on the customers who were clearly not the existing users (i.e. tier 2 and 3) but were surely the part of untapped market. Path 4 – Scope of product or service offering The Nano offering certainly considered the need of a new product in the growing economy with increasing purchasing power and demand. Path 5 – Functional emotional orientation of an industry The Tata group being one of the most respected brands in India, appealed the large mass to fulfil their dream of owning a car by being the first ever to think of such an innovative product.
8|Page
Tata Nano- Team 005
Path 6 – Time The introduction of Nano changed the outlook of automotive industry leading to scope of innovation in the industry and gaining a premier position in the long run with advantage of first mover in an untapped market. Considering the explanation given above, it can be said that Nano was an appealing choice across all the 3 tier groups. Certainly there is enough capability for the company (Tata) to sell the product across the various segments of the market considering the expanding sizeable market. Sequence of BOS---alignment between utility, price & cost Value Utility: Tata Nano was launched in March 2009 and by May 2009; Tata Motors received 206,000 fully paid orders for Nano. The company did a computer generated random allocation to 100,000 customers. So it does suggest that offering have a compelling reason for mass of people to buy it. The offering has following compelling reasons: Price, large interior space, effective air conditioner and high fuel efficiency. Another compelling reason for buyers was also the pride of owning a nano. It did unlocked exceptional utility. Nano users were happy with the car. Moreover, 75% of the bookings were outside the big five cities (Delhi, Mumbai, Kolkata, Chennai and Bangalore). Thirty percent of demand was from existing two-wheeled vehicle owners and 50% was from those who were buying their second car. Pricing: The offering is priced at strategic level to attract the target buyers. First 1 Lac cars were sold for Rs 1 Lac each. Price was “strategic” because it is much cheaper than next cheapest car in the world, approximately by 40-45%. Price helped the company to tap non customers like who drive the two-wheelers and could not afford a car. People desired a low price car but they wanted to have comfort. They wanted air conditioner and accessories even in Rs 100,000 car. So it delivered to people requirements and that’s why it is popularly known as “People’s Car”. Tata didn’t set the price of the Nano by calculating the cost of production and then adding to margin. Rather it set $2500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a $2500 car that would reward all involved with a small profit“. The design team of the product Nano followed a “Gandhian engineering” principle – deep frugality with a willingness to challenge conventional wisdom.
Costing: The cost structure is capable of ensuring good profit margins, although it is very sensitive to increase/decrease in prices of raw materials. Large amount of research in Product design has enabled Tata Motors to file for 34 patents associated with the design of the Nano. This innovations helped in cost saving. Moreover, Nano is a rear wheel drive vehicle, has only two cylinders with 623 cc multi point fuel injection engine. Cutting down the cost at the lowest possible level being the central theme, Tata Motors, could push the vendors to supply the components at about 25% lower prices. It is typical of any path-breaking technology to spread
9|Page
Tata Nano- Team 005
out through the supply chain. Tata Motors’ engineers and designers gave their all for about four years to realize this goal. “There are so many legacy costs built into the design, and trying to engineer those out is difficult….it is better to start with clean sheet of paper and engineer low cost in” – The design team of Nano.
Sustainability & renewal of Blue Ocean Strategy (fighting imitation &creating value innovation again) Creating a Blue Ocean offering is not a static but a dynamic process. Once an offering is created, sooner or later imitators will emerge. An offering always brings with itself barriers to imitations. Some of barriers are operational and others are cognitive e.g. patents or legal permits block imitations. Also, many times, the high volume generated by a value innovation leads to rapid cost advantages, placing imitators at an ongoing disadvantage. Company should swim across the blue ocean as far as possible, making itself a moving target, distancing itself from imitators and thus discouraging them in the process. As rivalry intensifies and lots of competitors exist in market, competition commences and turns Blue Ocean into red. As value curve of competitors converges towards company, company should bring out a value innovation to create a new ocean. By plotting value curve on strategy canvas, company can analyze degree of imitation by competitor and anticipate imitators move so as to sustain business. The six paths of blue ocean strategy serve as essential pointers for every company thinking about its future strategy if it aspires to lead the increasingly overcrowd business world. Blue and Red Ocean exists simultaneously for companies. As companies have know how of red oceans, they need to continuously innovate in blue ocean so as to make competition irrelevant. Blue ocean offering is simultaneous pursuit of product differentiation and low cost. The six path framework effectively helps companies to sustain by creating a new market space. These six paths are: ? ? ? ? ? ? Looking across alternative industries instead of focusing on competing within an industry. Looking across strategic groups within industries instead of a company confining itself to established strategic groups. Looking across the chain of buyers instead of focusing on the same buyer group as the rest of the industry. Looking across complementary products and services instead of a company limiting itself to the scope of an industry's products and services. Looking across functional or emotional appeal to buyers instead of accepting an industry's functional or emotional orientation. Looking across time instead of focusing on the same point in time as the rest of the industry.
10 | P a g e
Tata Nano- Team 005
Sources
1. 2. 3. 4. 5. www.automobileindia.com accessed on 8th Dec 2010. http://www.Gaadi.com accessed on 8th Dec 2010. NCAER.com accessed on 8th Dec 2010. http://www.asianage.com/business/india-car-sales-jump accessed on 8th Dec,2010 Blue Ocean Strategy (book) by W. Chan Kim and Renée Mauborgne
11 | P a g e
doc_627817948.docx
blue ocean strategy with the help of example of Tata Nano.
TATA NANO- A BLUE OCEAN
December 10
2010
Tata Nano- Team 005
Background
Between 1970 and 1984 cars were considered a luxury product; manufacturing was licensed, manufacturing was restricted; there were quantitative restrictions on import and a tariff structure designed to restrict the market. The market was dominated by 6 manufacturers - Telco (now Tata motors), Ashok Leyland, Mahindra & Mahindra, Hindustan motors, Premier automobiles and Bajaj auto. The decade of 1985 to 1995 saw the entry of Maruti Udyog in the passenger car segment. Economic liberalization, started in 1991, led to the delicensing of passenger car segment in 1993. This decade witnessed emergence of Hero Honda as major player in two wheelers and Maruti Udyog as the market leader in the passenger car segment. Situation in 2004-2005 The Indian automobile industry produced 8.5 million vehicles in 2004-05. During the financial year 200506, Indian automobile industry produced more than 9.5 million vehicles. The growth in production was 15%. Sale of passenger cars and utility vehicles has grown at 12% CAGR over the last decade. Two wheeler sales have grown at 11% CAGR during the last decade. Over the years sales of motor cycles has increased while sale of scooters and moped stagnated. With 5.82 million units sold in 2005-06(out of 7 million 2 wheelers), motorcycles replaced scooters as the preferred mode of transport. Visual Awakening (assessing the current environment) Factors market is currently competing on: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Fuel Efficiency Price Size Design Driving Pleasure Passenger comfort Durability Engine Power BHP Engine efficiency Interior looks Interior upholstery Latest features Colour variants After Sales service Spare Parts Safety features
Major Players: The below diagram shows the major players in the passenger car industry and their competing factors.
2|Page
Tata Nano- Team 005
Tata Indica Price Mileage (Highway) Mileage Seating Capacity Driver air bags Child Safety Locks Air Conditioner Tachometer Front Fog Lights Central Locking
Rs. 3,55,011 17.4 km/liter 13.6 km/liter 5 Person N Y Y Y Y N 475 IDI with Microprocessor based Engine Management System (ECU) 1405 cc 54PS @5500rpm 83Nm @2500rpm 5 Independent, Wish Bone type, with McPherson strut, Anti-roll Bar
Maruti 800
Rs. 2,15,203 19.9 km/liter 14.2 km/liter 4 Person N N Y N N N
Maruti Alto
Rs. 2,60,520 18.9 km/liter 14.5 km/liter 5 Person N Y Y N N N
Engine Type Displacement Power Torque Gear/speeds
In-Line Engine 796 cc 37.5@5,000 (PS@rpm) 6@2,500 (kgm@rpm) 4
FC engine 796 cc 47@6,200 (PS@rpm) 6.32@3,000 (kgm@rpm) 5
Front suspension
McPherson strut & coil spring
McPherson Strut with torsion type roll control device
Rear Suspension Steering type Front Brakes
Independent, Semi trailing arm with coil spring Coil spring Rack and pinion Manual Ventilated Discs Disc
Coil spring with three link rigid axle & isolated trailing arms Manual Disc
Source: Gaadi.com accessed on 8th Dec 2010
3|Page
Tata Nano- Team 005 Market Shares of major Manufacturers Total number of exports in April 05-06 23,043 68,374 12,105 31 9,928
Passenger Vehicles (PVS)
Maruti Udyog Hyundai Motors India Limited Tata Motors Honda Siel Cars India Ltd Ford India Pvt. Ltd.
From AprilNovember 04-05
From AprilNovember 05-06
Total Market Share (in %) 52.2 19.2 16.6 4.4 1.9
The Net Change between the period (in %) 8.1 20.2 -2.7 5.1 -30%
269,360 2,91,182 89,075 1,07, 066 95,402 24,348 23,186 15,026
th
24,348 10,512
Source: automobile India accessed on 8 Dec 2010
Visual exploration (looking beyond the Red ocean) AS IS Curve Based on the various common factors in the automobile industry we prepared a AS-IS curve to represent the existing market Strategy Canvas at the time of launch of Tata Nano. This curve gives an overview of what features were the various players competing on in the market.
4|Page
Tata Nano- Team 005
HIGH
AVERAGE
LOW
1. Who (profile) & where are the target/ desired non customers
Different Strategic Group within the same Industry and new buyer group
a. Many customers in the lower income group buy motorcycles for commuting and better fuel efficiency taking a risk with their safety. b. Sometimes, the whole family travels on a motorbike flouting all norms and safety regulations just because the other 4 wheeled modes of transport are out of their reach. c. Maintenance and after sales costs are unaffordable for these non customers. d. Non customers who dream of buying a car. e. Non customers who own a car and want to buy a second one.
Features which lead to change of preference (Buying of Motorcycle):
1. 2. 3. 4. 5. Higher Load bearing capacity Better fuel efficiency. Better Aesthetics Better Maneuverability in traffic. Easy handling.
5|Page
Tata Nano- Team 005 Two-wheeler domestic sales trend 2001-02 2002-03 2003-04 2004-05 2005-06 Motorcycles 2887194 3647493 4170445 4964753 5815417 Scooters 908268 825648 886295 922428 908159 Mopeds 408263 338985 307509 322584 332741
Source: automobile India accessed on 8th Dec 2010
2. How can a new market space being created a. New market space can be created by tapping the non customers who buy a motorcycle or plan to buy a motorcycle. b. Non customers who want to buy a second car. c. By tapping the emotional orientation of non customers who want to own a car but have low family income.
3. What are the changed competing factors appealing/creating value for the non customers (eliminated, raised, reduced, created)
ERRC Matrix ? ? ? ? ? ? ? ? ? ? ? Eliminate Air conditioner Fog Lights Air bags Child Safety Reduce Price Engine power Torque Driving pleasure Gear/Speed Suspension Interior Upholstery Raise ? ? Mileage Financing options
? ?
Create Rear engine Monthly Installments for payment
6|Page
Tata Nano- Team 005
Visual Strategy Fair 4. Can the offering create a new industry/ a new market space/ tap untouched market space thus making competition irrelevent? The offering, a new small car with a price tag of Rs. 1 lakh will create a new market space. No other competitor has conceived this idea and barriers of entry are high as this is a capital intensive industry.
5. Does competition have a comparable offering? No, competitors don’t have a comparable offering.
Tata Nano – An Innovation Or A Fluke Tata Nano is really a breakthrough in frugal engineering where innovation is driven by cost savings and sheer ingenuity. Nano's efficiency came from including only those items that were necessary for basic transportation and eliminating the not so relevant ones thus resulting in cost savings. Nano is much lighter compared to comparable models with limited features but still maintains Indian emission, pollution, and safety standards and provides an attractive fuel efficiency levels owing to innovative ideas. The innovation is not technology driven but surely a much futuristic way to look at to cater to the needs of many non-customers and potential customers over a period of time. The idea of Nano completely changed the paradigm shift of the automotive industry by thinking beyond the conventional wisdom of owing a car being a luxurious dream. The price of the car is what the customer pays in the beginning but later on, only the performance of the car matters. Beyond price, huge importance was given to the balanced design of Nano. Catering the three key requirements - cost, regulatory requirements and acceptable performance standards, Nano proved to create an entirely new blue ocean than still trying to fight it out in red ocean and thus contributing to company’s growth and success. As a part of strategy (this is just one example), Tata Motors filed for 34 patents associated with the design of the Nano in contrast to roughly 280 patents awarded to General Motors (GM) every year. The rationale behind the fact is that some of the most valuable innovations take existing, patented components and remix them in ways that more effectively serve the needs of large numbers of customers. Clearly, finding out ways to reduce cost do offer unprecedented value to the company and helps company in achieving profitable growth. Not only this, such ideas induce the competitors to
7|Page
Tata Nano- Team 005
think out of the box as well and thereby there are chances of seeing many more blue ocean scenarios in the market.
Go Beyond The Boundaries
As per the Society of Indian Automobile Manufacturers (SIAM), easy availability of finance and new models will keep automotive vehicle sales growing strongly in India.The Indian market, Asia's third-largest, is projected to triple over the next decade to six million cars a year from the current two million, according to industry estimates. Surely, there is a big enough market waiting for many players to enter in. Broadly speaking, the customers for this market can be divided into 3 categories: 1st tier Customers – people who own 3-wheelers / 4 wheelers 2nd tier Customers – people who own 2-wheelers 3rd tier Customers – people who don’t own any vehicle Certainly different groups have different choices and preferences. Like everyone else, Nano also had the same challenge to entertain the needs of different groups. Nano adopted its strategy to work on various paths to attract non-customers and potential customers which could be explained as below: Path 1 - Industry The strategy went beyond to think of the customers of the other industry. In this case, 2nd tier customers were clear targets which were actually the customers of 2-wheeler vehicle industry. Path 2 – Strategic Group The Nano offering created space within the existing customer base (i.e. 1st tier) along with 2nd tier group regarding repurchase of another car or a new car. Path 3 - Buyer Group The strategy focussed primarily on the customers who were clearly not the existing users (i.e. tier 2 and 3) but were surely the part of untapped market. Path 4 – Scope of product or service offering The Nano offering certainly considered the need of a new product in the growing economy with increasing purchasing power and demand. Path 5 – Functional emotional orientation of an industry The Tata group being one of the most respected brands in India, appealed the large mass to fulfil their dream of owning a car by being the first ever to think of such an innovative product.
8|Page
Tata Nano- Team 005
Path 6 – Time The introduction of Nano changed the outlook of automotive industry leading to scope of innovation in the industry and gaining a premier position in the long run with advantage of first mover in an untapped market. Considering the explanation given above, it can be said that Nano was an appealing choice across all the 3 tier groups. Certainly there is enough capability for the company (Tata) to sell the product across the various segments of the market considering the expanding sizeable market. Sequence of BOS---alignment between utility, price & cost Value Utility: Tata Nano was launched in March 2009 and by May 2009; Tata Motors received 206,000 fully paid orders for Nano. The company did a computer generated random allocation to 100,000 customers. So it does suggest that offering have a compelling reason for mass of people to buy it. The offering has following compelling reasons: Price, large interior space, effective air conditioner and high fuel efficiency. Another compelling reason for buyers was also the pride of owning a nano. It did unlocked exceptional utility. Nano users were happy with the car. Moreover, 75% of the bookings were outside the big five cities (Delhi, Mumbai, Kolkata, Chennai and Bangalore). Thirty percent of demand was from existing two-wheeled vehicle owners and 50% was from those who were buying their second car. Pricing: The offering is priced at strategic level to attract the target buyers. First 1 Lac cars were sold for Rs 1 Lac each. Price was “strategic” because it is much cheaper than next cheapest car in the world, approximately by 40-45%. Price helped the company to tap non customers like who drive the two-wheelers and could not afford a car. People desired a low price car but they wanted to have comfort. They wanted air conditioner and accessories even in Rs 100,000 car. So it delivered to people requirements and that’s why it is popularly known as “People’s Car”. Tata didn’t set the price of the Nano by calculating the cost of production and then adding to margin. Rather it set $2500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a $2500 car that would reward all involved with a small profit“. The design team of the product Nano followed a “Gandhian engineering” principle – deep frugality with a willingness to challenge conventional wisdom.
Costing: The cost structure is capable of ensuring good profit margins, although it is very sensitive to increase/decrease in prices of raw materials. Large amount of research in Product design has enabled Tata Motors to file for 34 patents associated with the design of the Nano. This innovations helped in cost saving. Moreover, Nano is a rear wheel drive vehicle, has only two cylinders with 623 cc multi point fuel injection engine. Cutting down the cost at the lowest possible level being the central theme, Tata Motors, could push the vendors to supply the components at about 25% lower prices. It is typical of any path-breaking technology to spread
9|Page
Tata Nano- Team 005
out through the supply chain. Tata Motors’ engineers and designers gave their all for about four years to realize this goal. “There are so many legacy costs built into the design, and trying to engineer those out is difficult….it is better to start with clean sheet of paper and engineer low cost in” – The design team of Nano.
Sustainability & renewal of Blue Ocean Strategy (fighting imitation &creating value innovation again) Creating a Blue Ocean offering is not a static but a dynamic process. Once an offering is created, sooner or later imitators will emerge. An offering always brings with itself barriers to imitations. Some of barriers are operational and others are cognitive e.g. patents or legal permits block imitations. Also, many times, the high volume generated by a value innovation leads to rapid cost advantages, placing imitators at an ongoing disadvantage. Company should swim across the blue ocean as far as possible, making itself a moving target, distancing itself from imitators and thus discouraging them in the process. As rivalry intensifies and lots of competitors exist in market, competition commences and turns Blue Ocean into red. As value curve of competitors converges towards company, company should bring out a value innovation to create a new ocean. By plotting value curve on strategy canvas, company can analyze degree of imitation by competitor and anticipate imitators move so as to sustain business. The six paths of blue ocean strategy serve as essential pointers for every company thinking about its future strategy if it aspires to lead the increasingly overcrowd business world. Blue and Red Ocean exists simultaneously for companies. As companies have know how of red oceans, they need to continuously innovate in blue ocean so as to make competition irrelevant. Blue ocean offering is simultaneous pursuit of product differentiation and low cost. The six path framework effectively helps companies to sustain by creating a new market space. These six paths are: ? ? ? ? ? ? Looking across alternative industries instead of focusing on competing within an industry. Looking across strategic groups within industries instead of a company confining itself to established strategic groups. Looking across the chain of buyers instead of focusing on the same buyer group as the rest of the industry. Looking across complementary products and services instead of a company limiting itself to the scope of an industry's products and services. Looking across functional or emotional appeal to buyers instead of accepting an industry's functional or emotional orientation. Looking across time instead of focusing on the same point in time as the rest of the industry.
10 | P a g e
Tata Nano- Team 005
Sources
1. 2. 3. 4. 5. www.automobileindia.com accessed on 8th Dec 2010. http://www.Gaadi.com accessed on 8th Dec 2010. NCAER.com accessed on 8th Dec 2010. http://www.asianage.com/business/india-car-sales-jump accessed on 8th Dec,2010 Blue Ocean Strategy (book) by W. Chan Kim and Renée Mauborgne
11 | P a g e
doc_627817948.docx