Reference no: EM133359446

Strategic Planning

Tata Nano, the world's cheapest car

When Ratan Tata first conceived the idea of a two-thousand-dollar car, it seemed to many to be just a dream. The idea was to develop a cheap, fuel-efficient car that could serve as an alternative to Indian motorcycle users. However, in 2009, the car entered the market. The initial demand for the "people's car" was estimated at several million, a demand that could not be met, so the first 100,000 were distributed by lottery. The introduction of the car was hampered by several setbacks: the West Bengal plant had to be closed due to protests from political and farmers' groups. This closure was not only costly, but also caused a three-month delay in the introduction of the car, production had to be moved to Pune in the western part of India and to Pantnagar in the northern region. The global financial crisis increased interest in economy cars, while demand for cars in general fell sharply. There are concerns about the long-term success of the Nano and other economy cars, due to their low profit margins profit margins, as the return on investment could take many years. When it introduced the Nano, Tata Motors also reported a quarterly loss, and this was compounded by the large bank loan needed to acquire Jaguar-Land Rover, which matured in 2008. In addition, its competitors also entered the low-price market. The India's Bajaj Auto Ltd., the country's second-largest motorcycle manufacturer, is also working with Nissan Motor and Renault on a low-cost car. Japan's Suzuki Motor, in a joint venture with Maruti Suzuki India Ltd. sells the Maruti 800, which, however, costs much more than the $2,000 Nano. When the car was introduced at a not inconsiderable price of two thousand six hundred ($2,600) dollars, only 20% selected this option and preferred the more expensive version with many extras. Half of the buyers purchased the top of the range version which cost 40% more. Many chose air conditioning, which meant higher margins for the company. The higher price also avoids price wars with competitors who sell more expensively. In its future plans, Rattan plans a version of the Nano for the U.S. market. However, the price would be substantially higher due to safety and other requirements in the country.

Questions

1. Ratan should keep the car low cost, what should the company do to keep the cost low?

2. Although there is limited information on the case, do you think it would be a smart marketing to advertise a cheap car like the Tata Nano next to the luxury Jaguar?

3. A low-priced Nano would be successful in the U.S. market, would you be interested in such a car, and why?