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What Type Of Pricing Strategy Is Tata Using For The Tata Nano For Its Product Launch In India? Justify Why This Strategy Was Chosen And Identify Both The Positives And Negatives Of Using This Strategy.
With the release of the Tata Nano it is created a stir in the world automobile industry as the cheapest car. The Tata Nano also known as the 100,000 Rupees car (£1500 approx) was targeted at the people who were not able to buy a car. In order for Tata to make this possible they had to reduce many features which is visible in the other normal cars, in order to stick to their price. Yet the Nano meets the all of India's safety standards and regulations.
Tata has used the Market Penetration Pricing Strategy on introducing the Nano to the Indian market. They have imposed a low price on the Tata Nano in order to sell the product and to gain a larger market share. As Tata has gained a large market share in their motor industry the Nano is only another addition to Tata's motor division. The Nano is a very low priced car as it is been targeted mainly at the people who are not able to afford a car. With the low price Tata can gain a larger market share which is an advantage to Tata. With the high level of competition the Nano has to maintain their price or the Nano will lose its market share and it's place in the automobile industry and the minds of people, as Tata has also named the Nano as the ‘peoples car'.
Even though this pricing strategy is used by companies to encourage brand switching, in here the motive of the Tata Company to adopt this pricing strategy is to attract new users who are unable to offer competitive products which are expensive in price. At the same time the launch of Nano will surprise the competitors and they will not find enough time to react by researching the secrets of manufacturing Nano at such a low price. This low price will act as a barrier for the competitors to enter the market.
The Nano can be used by a first time user or a regular user and also segmented to a culture, sport or outdoor oriented lifestyle. The low price will largely attract first time users and create massive popularity through the spreading of positive word of mouth. The Nano also attracts small car buyer like the Maruti 800 and bike riders, as well as the masses of the families that wasn't able to afford a car. The Nano is classified as a specialty product because the Nano is only sold through dealers of Tata and its unique features and the brand identification it has received make this a consumer specialty good.
The Nano was a product that people was waiting for, so the demand for the Nano is highly elastic which is a very good positive point for Tata when they are launching. By this Tata will be able to boost their sales of the Nano with the low price which is been imposed on the Nano. If the demand for the Nano is elastic Tata will be able to reduce the cost of production per unit.
However the company will have to face problems if they want to change the price of the product at a particular point in time of the future as people will create long term expectations. The company is also risking their image by offering this product using this strategy as customers will tend to create a misconception that Tata brand is associated with low quality. Also the company will have to face greater problems in the long run with the lower profit margins that won't be sufficient for suatainability of the firm in the long run.
If Tata Did Launch The Nano In Europe What Should Be The Pricing Strategy? Should It Be The Same Across Europe Or Differ In Each Country? Support Each Of Your Answers With Your Own Reasons And The Use Of Marketing Theory And / Or Models.
If Tata is to launch the Nano in Europe Tata will have to take into consideration the premium strategy where the price of the product will be high as well as the quality of the product. In order to be sold in Europe Tata has to improve the quality and features of the Nano as the Nano is built to the standards and regulations of India, where as the standards and regulation of Europe are different compared to India. As a low price would make it hard for the Nano to survive in the European market with its current features. Because of its other rivals with better features and also with a low price. The Nano has to maintain its price to its minimum in order to avoid competition.
But at the time of launching the product the company will have to select one of the two new product pricing strategies available. Out of the two it will be best for the company to go ahead with the same market penetration pricing strategy for the launch as it can not go ahead with the Market Skimming Pricing Strategy even in the European market. The company can not use Skimming pricing here unless the Nano car goes as a high end product. This means that if the Tata Company is going to launch the same Nano car that they have launched in India, in the European market as well they will have no option other than to use the Penetration Pricing Strategy for the launch. If the product is going to be launched as a high end product with the relevant modifications to ideally suite the European market then the company can use Skimming Pricing.
But Tata cannot apply the same pricing strategy across all countries because each country is different to each other, because the price charged in a country depends on many factors. This is where the international pricing price adjustment strategy is applied. One country's economic background may be different to another country's economic background. The income level and the per capita income of the countries even within the European continent are different. Company can go with a high price in par with the features offered by the product in richest countries in Europe such as Luxembourg, Norway, Great Britain, Germany or Belgium. But they need to charge a relatively low price in poor countries within the continent like Kosovo, Albania, Moltova etc. As most of the established car makers such as Chrysler, Ford and Peugeot are available in the rich countries like Germany, Great Britain and France etc. it is best for the Tata Company to target Nano to the poor countries in the European continent with its positioning as the cheapest car in the world.
The price of the Nano may change depending on the level of tax the government will be imposing on the Nano; a higher tax would relatively increase the price of the Nano and vice versa. Because of this the projected price by Tata of 100,000(rupees) cannot be maintained in other countries, which is a drawback for Tata. The economic conditions is not the only drawback, Tata has to face problems such as competitive situations and laws and regulations. At the same time Tata will have to make modifications to the product to meet the safety standards and vehicle regulations among different countries in the world. The vehicle standards and safety regulations among the different countries in the European continent are not the same. As Tata will have to make changes to suit the markets of each country definitely the price that they would charge will also differ from country to country.
Critically Evaluate The Drawbacks Of Charging Such A Low Price For The Nano For All Concerned, And The Likely Social And Other Repercussions (If It Were To Be Sold In Europe And The USA, For Example).
The dream of Mr. Ratan Tata is a good one which he intends to help the lower class of people with an affordable way of transportation. But the Tata Nano has its negatives and positives. If the car is to be sold at such a low price there would be huge excess demand. In a country like India a car like Nano would be perfect to get around traffic but as people start buying more and more Nano's there will be a large problem of excess traffic in the cities. Once this happens people will have a serious problem of going somewhere as there is a huge traffic causing people to spend most of their time in the road. This will create huge traffic congestion demanding the authorities to expand the width of the roads and to construct more subways so that people could avoid traffic. This will require massive government investments by the government for which they will have to raise funds through the collection or charging of taxes from the corporate community and the ordinary citizens. This will again affect Tata as it is also a member of the corporate community of India and it will have to pay a relatively larger portion of its taxes to the government.
If the demand for the Nano starts to increase it will reduce the demand for the two wheeler manufacturers (motor bicycles and bicycles) which will create a monopolistic competition. This will affect the existence of this type of businesses as well as it will affect the business of established automakers in the European continent. As Nano will create huge competition to these manufacturers, the revenue level of these companies will come down and their profits would fall. This will affect the income of the employees of these businesses as well as to the living of suppliers who had been regularly supplying component parts to them. These will create a huge job risk for the employment of these people as they might have to face terminations of employment and layoffs.
As the Tata Nano is built of a low grade metal (aluminum) the damage caused to the vehicle is immense and it is very risky for the people who travel in it as it has no air bags, and that the front of the vehicle is very short it could cause a large damage to vehicles as well as the passengers. The increase in the sales of the Nano would create a lot of sound and air pollution especially in countries like India; it would also cause a lot of parking problems if the amount of cars starts to increase. As there are more vehicles on the road the emissions will be enormous creating global warming and ozone layer depletion. This will adversely affect the health conditions especially of the urban population who live by the roads.
The Nano is only a city car and it cannot travel at very high speed on highways especially in USA and Europe. Once the car is at its top speed it will tend to be thrown of the road causing accidents, and a car like this is not good at all for travelling long distances. But the people will not really understand the occasions in which it could be used as they will be blind by the low price attraction. This low price will create a fallacy among everybody to buy the vehicle without really evaluating their travel requirements and their suitability for them. This might take place in the manner of a fad for a short period of time and later when the people understand it the fad will fade away but it will create a bad image for the world renowned ‘Tata' brand name.
Using A Marketing Analysis Tool, And The Output You Obtain From Using It, Discuss (With Justifications) The Following
- Should Tata modify the Nano, to meet the vehicle standards and regulations of Europe and the USA
- Are these suitable export markets for Tata and the Nano car?
In order for the Nano to be sold in Europe or USA it will have to go under serious modifications, because Tata cannot introduce the Nano which they had manufactured for India in the same way to the European and US markets. The current Nano is made under the standards and regulations of India, and as such in order for it to be sold to the European or the US market Tata will have to modify the Nano according to the relevant countries standards and regulations, where the US and European standards and regulations are much stricter than India.
Tata will have to be concerned about the safety issues of the Nano and run tests to check if the Nano still has any factory defaults. Tata has to be on the alert on this issue because it is one of the major standards that are compulsory in any vehicle in the Europe and the USA. Tata will also have to consider about the emission of the car. Tata will have to build two different types of Nano's for the US and European Markets in order to meet the standards and regulations of those two markets.
Through the purchase of land rover and jaguar Tata has made a good impression on the minds of people, and Tata won't be having any problem in marketing the Nano in these markets if the Nano goes with the expected modifications. Tata is very popular for its heavy vehicles which is been widely used in many European countries Tata already has established the market. As Tata will be building a Nano which meets the standards and regulations of the European market with more features Tata will be able to sell the Nano easily. Also with Nano's low price compared to the other brands, it has gained popularity and as many people are looking forward for its arrival of the European version Europe will be a good export market.
After considering the factors about the European market we can come to a conclusion that, there are better export markets for Nano than the Europe and US markets. There are so many other markets where the Tata Company can send the car without much investment on modifications. Then this is more convenient for the manufacturer also, as they can export the original model of Nano without doing any changes to it if the Tata Company exports the car to countries like Sri Lanka, Bangladesh, and Nepal. African countries like Namibia, Erithria, Libya, Malawi etc. are also good export markets for the company's product as the social and economic conditions of these countries are somewhat similar to India the product will suite these countries in the original version without requiring any modifications. The transportation costs of the vehicle (freight charges) also will be high if the car is to be exported to Europe and US than exporting it to other countries and when they add the freight charges also the price of the Nano will rise and the company will not be able to sell it at the low price that they expect.
Entering western markets with this product being an Asian company will also cause the company to face certain International Marketing risks. As technologies get advanced at a rate in the European region the car will require regular modifications to remain competitive. And as people in this region always prefer to go for the big and large car models like Chrysler the customers of Nano will also not have any brand loyalty to the product. According to all these the company is facing huge risks by exporting the car to this European market.