A PROJECT REPORT
OF
SEMINAR ON CONTEMPORARY ISSUES
TOPIC-“PENETRATION AND SKIMMING PRICING STRATEGIES”
FACULTY NAME :-MS.DARSHPREET KAUR.
STUDENT NAME:-SUMIT SINGHAL
RT1902A18
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ACKNOWLEDGEMENT
The successful completion of any task would be incomplete without mentioning the people who
have made it possible. So it`s with the gratitude that I acknowledge the help, which crowned my
efforts with success.
Life is a process of accumulating and discharging debts, not all of those can be measured. We
cannot hope to discharge them with simple words of thanks but we can certainly acknowledge
them.
I owe my gratitude to MISS DARSHPREET KAUR(LECTURER LIM) for her constant
guidance and support.
I would also like to thank the various department officials and staff who not only provided me
with required opportunity but also extended their valuable time and I have no words to express
my gratefulness to them.
Last but not the least I am very much indebted to my family and friends for their warm
encouragement and moral support in conducting this project work.
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EXECUTIVE SUMMARY
Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing
mix. Pricing is the process of determining what a company will receive in exchange for its
products. Pricing factors are manufacturing cost, market place, competition, market condition,
and quality of product. Pricing is also a key variable in microeconomic price allocation theory
So, in this report firstly I explained the price and after that I focused on the two Pricing strategies
.i.e. Penetration and Skimming Pricing- The idea of penetration pricing is different from another
technique known as price skimming. With the skimming approach, a product is introduced at a
higher price rather than a lower one. I also mentioned the advantages and disadvantages of both
type of Pricing strategy. The favourable conditions for each Pricing Strategy is also mentioned
here . With the help of examples I try to make understanding of both and also highlighted the
big brands are using this Pricing Strategy.I also covered a company profile of Tata motor with its
SWOT and PEST Analysis. The hierarchical order of TATA motors with its core competencies
is also covered in this Report.
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TABLE OF CONTENTS
ACKNOWLEDGEMENT…………………………………………… 2
EXECUTIVE SUMMARY ………………………………………….. 3
PRICING INTRODUCTION ……………………………………….... 5
PRICING STRATEGY ………………………………………………… 6
MARKETING STRATEGY …………………………………………… 7
ENVIROMENTAL FACTORS ……………………………………….. 8
PRICING OBJECTIVES ……………………………………………… 8
SKIMMING PRICING …………………………………………………. 9
REASONS FOR SKIMMING …………………………………………… 10
ADVANTAGES OF SKIMMING PRICING …………………………… 10
DISADVANTAGES OF SKIMMING PRICING ……………………….. 11
EXAMPLES OF SKIMMING PRICING ………………………………… 14
PENETRATION PRICING ………………………………………………. 14
ADVANTAGES OF PENETRATION PRICING …………………………. 19
DISADVANTAGES OF PENETRATION PRICING ……………………… 20
LIMITATIONS ………………………………………………………………. 20
EXAMPLES ……………………………………………………………………. 21
TATA MOTOR INTRODUCTION ………………………………………….. 23
CEO TATA MOTORS …………………………………………………………. 23
COMPANY OVERVIEW ……………………………………………………….. 24
CORE COMPETENCIES ………………………………………………………... 26
PEST ………………………………………………………………………………… 30-33
SWOT ………………………………………………………………………………… 34-37
REFERENCES ……………………………………………………………………… 38
APENDIX- A ………………………………………………………………………….. 39
APENDIX-B ………………………………………………………………… 40
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PRICING INTRODUCTION
Pricing is the process of determining what a company will receive in exchange for its products.
Pricing factors are manufacturing cost, market place, competition, market condition, and quality
of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a
fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The
other three aspects are product, promotion, and place. Price is the only revenue generating
element amongst the four Ps, the rest being cost centers.
Pricing is the manual or automatic process of applying prices to purchase and sales orders, based
on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor
quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or
lines, and many others. Automated systems require more setup and maintenance but may prevent
pricing errors. The needs of the consumer can be converted into demand only if the consumer
has the willingness and capacity to buy the product. Thus pricing is very important in marketing.
What a price should do
A well chosen price should do three things:
achieve the financial goals of the company (e.g., profitability)
fit the realities of the marketplace (Will customers buy at that price?)
support a product's positioning and be consistent with the other variables in the marketing
mix
price is influenced by the type of distribution channel used, the type of promotions used,
and the quality of the product
price will usually need to be relatively high if manufacturing is expensive,
distribution is exclusive, and the product is supported by
extensive advertising and promotional campaigns
a low price can be a viable substitute for product quality, effective promotions, or an
energetic selling effort by distributors
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From the marketer's point of view, an efficient price is a price that is very close to the maximum
that customers are prepared to pay. In economic terms, it is a price that shifts most of the
consumer surplus to the producer. A good pricing strategy would be the one which could balance
between the price floor (the price below which the organization ends up in losses) and the price
ceiling (the price beyond which the organization experiences a no demand situation).
Pricing Strategy:-
One of the four major elements of the marketing mix is price. Pricing is an important strategic
issue because it is related to product positioning. Furthermore, pricing affects other marketing
mix elements such as product features, channel decisions, and promotion.
While there is no single recipe to determine pricing, the following is a general sequence of steps
that might be followed for developing the pricing of a new product:
1. Develop marketing strategy - perform marketing analysis, segmentation, targeting, and
positioning.
2. Make marketing mix decisions - define the product, distribution, and promotional
tactics.
3. Estimate the demand curve - understand how quantity demanded varies with price.
4. Calculate cost - include fixed and variable costs associated with the product.
5. Understand environmental factors - evaluate likely competitor actions, understand
legal constraints, etc.
6. Set pricing objectives - for example, profit maximization, revenue maximization, or
price stabilization (status quo).
7. Determine pricing - using information collected in the above steps, select a pricing
method, develop the pricing structure, and define discounts.
These steps are interrelated and are not necessarily performed in the above order. Nonetheless,
the above list serves to present a starting framework.
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Marketing Strategy and the Marketing Mix :-
Before the product is developed, the marketing strategy is formulated, including target market
selection and product positioning. There usually is a tradeoff between product quality and price,
so price is an important variable in positioning.
Because of inherent tradeoffs between marketing mix elements, pricing will depend on other
product, distribution, and promotion decisions.
Estimate the Demand Curve
Because there is a relationship between price and quantity demanded, it is important to
understand the impact of pricing on sales by estimating the demand curve for the product.
For existing products, experiments can be performed at prices above and below the current price
in order to determine the price elasticity of demand. Inelastic demand indicates that price
increases might be feasible.
Calculate Costs
If the firm has decided to launch the product, there likely is at least a basic understanding of the
costs involved, otherwise, there might be no profit to be made. The unit cost of the product sets
the lower limit of what the firm might charge, and determines the profit margin at higher prices.
The total unit cost of a producing a product is composed of the variable cost of producing each
additional unit and fixed costs that are incurred regardless of the quantity produced. The pricing
policy should consider both types of costs.
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Environmental Factors
Pricing must take into account the competitive and legal environment in which the company
operates. From a competitive standpoint, the firm must consider the implications of its pricing on
the pricing decisions of competitors. For example, setting the price too low may risk a price war
that may not be in the best interest of either side. Setting the price too high may attract a large
number of competitors who want to share in the profits.
From a legal standpoint, a firm is not free to price its products at any level it chooses. For
example, there may be price controls that prohibit pricing a product too high. Pricing it too low
may be considered predatory pricing or "dumping" in the case of international trade. Offering a
different price for different consumers may violate laws against price discrimination. Finally,
collusion with competitors to fix prices at an agreed level is illegal in many countries.
Pricing Objectives
The firm's pricing objectives must be identified in order to determine the optimal pricing.
Common objectives include the following:
Current profit maximization - seeks to maximize current profit, taking into account
revenue and costs. Current profit maximization may not be the best objective if it results
in lower long-term profits.
Current revenue maximization - seeks to maximize current revenue with no regard to
profit margins. The underlying objective often is to maximize long-term profits by
increasing market share and lowering costs.
Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience
curve.
Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.
Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.
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Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.
Survival - in situations such as market decline and overcapacity, the goal may be to
select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.
Status quo - the firm may seek price stabilization in order to avoid price wars and
maintain a moderate but stable level of profit.
For new products, the pricing objective often is either to maximize profit margin or to maximize
quantity (market share). To meet these objectives, skim pricing and penetration pricing strategies
often are employed.
SKIMMING PRICING INTRODUCTION :-
Price skimming is a pricing strategy in which a marketer sets a relatively high price for
a product or service at first, then lowers the price over time. It is a temporal version of price
discrimination/yield management. It allows the firm to recover its sunk costs quickly before
competition steps in and lowers the market price.
OR
Market skimming pricing can be defined as charging relatively high price for a short time where
a new,innovative or much improved product is launched into the market.
CONDITIONS THAT FAVOR SKIMMING INCLUDE:
1) Pent up demand (or high current demand if it's for a completely new product
like when MP3 was introduced)
2) Unit production costs don't get too cumbersome at low volume
3) High profitability doesn't attract competition too quickly
4) High price gives a premium brand image
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REASONS FOR PRICE SKIMMING:-
Price skimming occurs in mostly technological markets as firms set a high price during the first
stage of the product life cycle. The top segment of the market which are willing to pay the
highest price are skimmed of first. When the product enters maturity the price is lowered.
Price skimming is sometimes referred to as riding down the demand curve. The objective of a
price skimming strategy is to capture the consumer surplus. If this is done successfully, then
theoretically no customer will pay less for the product than the maximum they are willing to pay.
In practice, it is almost impossible for a firm to capture all of this surplus.
Market-skimming pricing is the practice of raising a price for a product and marketing it to the
market willing to pay the higher price. Market-skimming pricing brings in less sales but
ultimately more revenue per sale. Market-skimming requires market research and strategy for a
higher income demographic.
ADVANTAGES OF PRICE SKIMMING
Where a highly innovative product is launched, research and development costs are likely
to be high, as are the costs of introducing the product to the market via promotion,
advertising etc. In such cases, the practice of price-skimming allows for some return on
the set-up costs
By charging high prices initially, a company can build a high-quality image for its
product. Charging initial high prices allows the firm the luxury of reducing them when
the threat of competition arrives. By contrast, a lower initial price would be difficult to
increase without risking the loss of sales volume
Skimming can be an effective strategy in segmenting the market. A firm can divide the
market into a number of segments and reduce the price at different stages in each, thus
acquiring maximum profit from each segment
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Where a product is distributed via dealers, the practice of price-skimming is very popular,
since high prices for the supplier are translated into high mark-ups for the dealer
For ‘conspicuous’ or ‘prestige goods’, the practice of price skimming can be particularly
successful, since the buyer tends to be more ‘prestige’ conscious than price conscious.
Similarly, where the quality differences between competing brands is perceived to be
large, or for offerings where such differences are not easily judged, the skimming
strategy can work well. An example of the latter would be for the manufacturers of
‘designer-label’ clothing.
Price skimming helps in recovering the sunk costs. Sunk costs are costs incurred in past
which cannot be recovered. When a new and innovative product is launched its research
and development costs are usually high. Similarly a lot of promotion via advertising etc.
is required for its introduction to the market. The initial hike in price helps in recovering
some of these expenses.
Price skimming helps in segmenting the market. The price can be lowered to suit each
segment and thereby the demand of each segment is satisfied and the manufacturer makes
maximum profit from each of them.
The high price of the product brings huge benefits for the dealers as well. Since the prices
are high initially the manufacturer has the liberty of lowering it when competitors knock
at the door.
DISADVANTAGES OF PRICE SKIMMING
This policy is workable only when the product has an inelastic demand curve. For
instance, price changes have no effect on the demand for a life saving drug. The price
may $100 or $50 people will buy it. If in the long run demand curve turns elastic then
market equilibrium will be attained by quantity changes instead of price changes.
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It is difficult to maintain the stock for skimmed products. It isn’t an easy proposition
for the distribution chain. Retailers may ask for higher profit margins to continue
distribution of products.
Skimming attracts competitors. The high margins compel them to enter the market as
soon as possible.
The rate of diffusion is slow for skimmed products. The competitors take advantage of
this situation. They either turn copy cats and come out with similar cheaper products or
go one step further and introduce a similar product with enhanced features.
Lowering of price should be done at an appropriate time. If lowered too soon the early
customers feel cheated. They feel waiting for some more time before buying the product
would have helped them strike a profitable deal. As a result the company and its brand
name suffer.
Inefficiency may creep into the firm. Due to high margins less effort is made to keep a
check on the costs.
THERE ARE SEVERAL POTENTIAL PROBLEMS WITH THIS
STRATEGY.:-
It is effective only when the firm is facing an inelastic demand curve. If the
long run demand schedule is elastic (as in the diagram to the right), market
equilibrium will be achieved by quantity changes rather than price
changes. Penetration pricing is a more suitable strategy in this case. Price
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changes by any one firm will be matched by other firms resulting in a rapid
growth in industry volume. Dominant market share will typically be
obtained by a low cost producer that pursues a penetration strategy.
A price skimmer must be careful with the law. Price discrimination is illegal
in many jurisdictions, but yield management is not. Price skimming can be
considered either a form of price discrimination or a form of yield
management. Price discrimination uses market characteristics (such as price
elasticity) to adjust prices, whereas yield management uses product
characteristics. Marketers see this legal distinction as quaint since in almost
all cases market characteristics correlate highly with product characteristics.
If using a skimming strategy, a marketer must speak and think in terms of
product characteristics in order to stay on the right side of the law.
The inventory turn rate can be very low for skimmed products. This could
cause problems for the manufacturer's distribution chain. It may be
necessary to give retailers higher margins to convince them to handle
enthusiastically the product.
Skimming encourages the entry of competitors. When other firms see the
high margins available in the industry, they will quickly enter.
Skimming results in a slow rate of stuff diffusion and adaptation. This
results in a high level of untapped demand. This gives competitors time to
either imitate the product or leap frog it with a new innovation. If
competitors do this, the window of opportunity will have been lost.
The manufacturer could develop negative publicity if they lower the price
too fast and without significant product changes. Some early purchasers will
feel they have been ripped off. They will feel it would have been better to
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wait and purchase the product at a much lower price. This negative
sentiment will be transferred to the brand and the company as a whole.
High margins may make the firm inefficient. There will be less incentive to
keep costs under control. Inefficient practices will become established
making it difficult to compete on value or price.
EXAMPLES OF SKIMMING PRICING :-
B2C skimming examples are found in new technology electronics, such as
HDTV, iPhone, etc.
B2B skimming examples include premium services (such as inventory
management) to key customers that are willing to pay the premium for such
services.
"When Sony introduced the world's first high definition television to the Japanese market in 1990, the high-tech sets cost $43,000. These televisions were purchased only by customer who could afford to pay a high price for the new technology. Sony rapidly reduced the price over the next several years to attract new buyers. By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000. In 2001, a Japanese consumer could buy a 40-inch HDTV for about $2000, a price that many more customers could afford. In this way, Sony skimmed the maximum amount of revenue from the various segments of the market."
PENETRATION PRICING
Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.
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Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). A penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand.
The implications of an imperfect market's downward sloping demand curve are evident in a typical new product pricing decision: should a product be launched with an aggressively low price from the start (penetration strategy), or should the product be introduced at a high initial price with subsequent price reductions as the market matures (a skimming strategy).
Again, if the product were being launched into a perfectly competitive market, there would be no pricing decision to make per se. The prevailing market price would be the price. So, the company's decision is whether or not to launch the product.
But, a substantially new product is, in effect, a mini or local monopoly. That is, for at least some segments of the market for which the product is targeted, the new product is initially unique with no substitutes. So, the innovating company has pricing leeway. The more the product is unique (i.e. differentiated) and strategically targeted, the greater the monopoly effect and the broader the pricing leeway.
From a strategic perspective, a market share focused penetration strategy is most appropriate when it is important to exploit a potentially transient first mover advantage, or to quickly establish a broad installed base in anticipation of:
(a) Cost improvements from scale, scope or experience (learning curve)
(b) Substantial complementary product sales (e.g. razors and blades, toner cartridges for printers and copiers)
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(c) Subsequent upgrade cycles (software)
(d) Network effects that provide increasing benefits as more customers buy the product (e.g. fax machines)
The conceptual essence of a penetration strategy is illustrated below.
To quickly penetrate the market, the company launches the product at relatively low price (P1),
expecting to sell quantity Q1, and generate revenues equal to P1 times Q1 (the area of the shaded
box). The penetration strategy capitalizes on the downward sloping demand curve since the
company can pick the price and, within some reasonable bounds, optimize the resulting short-run
sales quantity.
The penetration price selected (P1 in this case) will typically be driven by two factors: price
elasticity and marginal cost.
Price elasticity is a measure of the market's responsiveness to a price change. If the quantity
demanded increases (in percentage terms) more than a price decreases (also in percentage terms),
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then revenue goes up and demand is said to be price elastic at that point. Conversely, if quantity
increases less than price decreases, then revenue goes down and demand is inelastic.
In most instances, companies will only consider a lower price if revenue is projected to increase,
i.e. demand is elastic with respect to price. But, since the ultimate objective is profitability, a
revenue increase is necessary but not sufficient: profits may decrease even if revenues increase
since a company typically incurs higher total product cost (fixed plus variable) when volume
increases, unless scale economies or experience effects are sufficiently large that variable costs
per unit decline.
More specifically, the penetration price is usually set higher than the firm's marginal cost to
bolster profitability. In some special cases, though, the penetration price may actually be lower
than marginal cost. For example, a firm may be willing to incur initial losses (i.e. price below
cost) if substantial future-related profitable sales are expected from complementary sales,
upgrades, or price increases.
For example, HP tries to sell as many printers as it can, even at slim margins, and then make
money from ink and other consumables. According to Fortune, "Every second of every day, HP
makes one new printer and ten new ink-jet cartridges. The company controls 60% of the ink-jet-
printer market and 55% of the laser business. Last year, HP sold about $9 billion of ink and
supplies, or nearly as much as it took in from printers. But while printers carry gross profit
margins of 15% to 20%, the margins on ink are 50%. Indeed, ink accounts for most of the
company's profits. Call it HP's black gold."
The polar opposite to penetration pricing is called skim pricing.
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Market Penetration Pricing - A Quick Market Entry Pricing Strategy
WHEN IS LOW ENTRY PRICE STRATEGY APPROPRIATE? :-
Low entry pricing should be adopted only in a situation where the business organization is financially very strong and can survive on low profit margins for a prolonged period of time. Secondly, the basic demand for the product should be high so that economies of scale may be achieved in order to operate on a low price
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for a long time. Therefore, this strategy is usually preferred for products that command a mass market, and the mass consumers are highly price sensitive.
PRICE PENETRATION IS MOST APPROPRIATE WHEN:
Product demand if highly price elastic.
Substantial economies of scale are available.
The product is suitable for a mass market (ie.: sufficient demand).
The product will face stiff competition soon after introduction.
There is inadequate demand in the low elasticity market segment for price skimming.
In industries where standardization is important. The product that achieves high market
penetration often becomes the industry standard (eg.: Microsoft Windows) and other
products, even very much superior products, become marginalized.
THE ADVANTAGES OF PENETRATION PRICING ARE:
It can result in fast diffusion and adoption. This can achieve high market penetration rates
quickly. This can take the competition by surprise, not giving them time to react.
It can create goodwill among the all-important early adopter segment. This can create
valuableword of mouth .
It creates cost control and cost reduction pressures from the start, leading to greater
efficiency.
It discourages the entry of competitors. Low prices act as a barrier to entry (see: porter 5
forces analysis).
It can create high stock turnover throughout the distribution channel. This can create
critically important enthusiasm and support in the channel.
It can be based on marginal cost pricing, which is economically efficient.
The core benefit of this strategy is that it manages to cut down the struggle time for a new brand, and gains early adopters for it fairly quickly. Thereafter, the early adopters can lead to more customers through word of mouth publicity. If the market is particularly large and diverse, this strategy makes it easy to achieve quick diffusion of the product across various market segments.
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THE DISADVANTAGE OF PENETRATION PRICING :-
The main disadvantage with penetration pricing is that it establishes long term price
expectations for the product, and image preconceptions for the brand and company.
This makes it difficult to eventually raise prices. Some commentators claim that
penetration pricing attracts only the switchers (bargain hunters), and that they will
switch away as soon as the price rises. There is much controversy over whether it is
better to raise prices gradually over a period of years (so that consumers don’t
notice), or employ a single large price increase. A common solution to this problem
is to set the initial price at the long term market price, but include an initial discount
coupon (see sales promotion). In this way, the perceived price points remain high
even though the actual selling price is low.
The most obvious potential disadvantage of implementing a penetration pricing
strategy is the likelihood of competing suppliers following suit by reducing their
prices also, thus nullifying any advantage of the reduced price (if prices are
sufficiently differentiated the impact of this disadvantage may be diminished).
A second potential disadvantage is the impact of the reduced price on the image of
the offering, particularly where buyers associate price with quality.
LIMITATIONS OF PENETRATION PRICING
One of the common challenges posed by this strategy is that once the initial market euphoria settles down, it may become difficult for the company to sustain such low pricing for the long term. The hurdle usually is that the customers tend to associate the brand’s image with low price, and are unable to accept it if the price goes high. In many cases, the customers switch back their loyalties to older brands that did not compromise on their image as a quality and not price oriented player.
This limitation should be carefully evaluated by a marketer before choosing this strategy to promote a new brand. Some marketing experts are of the opinion that a mid-way strategy should be adopted to overcome this limitation. The brand should maintain an initial price in line with the competitors’ prices, but offer an introductory discount coupon or scheme to encourage customers to try the new brand and form an opinion about it after usage.
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AGGRESSIVE PRICING TO INCREASE MARKET SHARE:-
Penetration pricing strategy is one of the most effective marketing strategies available to a business organization. However, this strategy can be used only in specific situations when the business is in a strong position to sustain itself even with a penetration price. This strategy involves setting a low entry price for a new product or brand in order to gain a breakthrough in a highly competitive market. The strategy can also be used when introducing a completely novel product in the market or when tapping a new market segment for an existing product.
A company employs penetration pricing with the expectation that eventually the price will be raised once the initial marketing objectives are fulfilled. Its aim is to attract the customers to try the company’s product. By keeping the price intentionally lower than established competitors, the business aims to compromise existing brand loyalties of the customers. The ultimate goal of this strategy is not to maximize profits, but to allow a new product or brand to gain a foothold in the marketplace.
INDUSTRY EXAMPLES OF PENETRATION PRICING
Discount retailers such as Wal-Mart and many other multi-national corporations such as Procter and Gamble and Unilever employ this strategy to penetrate into new and unknown international markets. An innovative food brand may use this strategy at a local level when there is an expectation that customers may get hooked on it due to its unique taste and quality. Car manufacturers employ this strategy sometimes in untapped consumer segments of Asian and African markets in order to create a new desire in the segment to own a premium product.
An interesting variant of this strategy is the “hook and bait” strategy that is applicable in specific durable product segments. For instance, Gillette is known to penetrate new markets by offering its razors at extremely low prices, and once the customer is hooked on to its quality, it makes money by selling blades at high prices. Similarly, computer printer manufacturers such as Hewlett-Packard sell their printers at very low prices to enter the market, and then make money by selling ink cartridges at high prices.
Micro-Max mobile manufacturing company also using this Strategy for establishment in the Indian Market.
DTH services of India were companies are reducing the prices to gain more number of customers.
McAfee had an interesting penetration pricing strategy. It actually placed its software on BSS. Many corporate users downloaded the software and started using that. Once they discovered an organization with many users using its software, it contacted the organization and asked for a small fee per PC. Most organizations preferred to pay the small fee instead of either being unprotected or bearing the cost of removing the software from all the PCs.
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TATA MOTORS use Penetration Pricing strategy for the launch of its small car “NANO”.
DIFFERENCE BETWEEN SKIMMING PRICING AND PENETRATION PRICING :-
Skimming pricing is for new or innovative product, the price at the begining is high and
customers are not price sensitive.
Penetration pricing set a low price at the begining to gain a mass market, and the price
will rise later. The customers are price sensitive.
Some manufacturers of new products, however, take a decidedly different tack when
introducing their goods to the marketplace. Some choose to engage in skimming pricing,
a strategy wherein the initial price for the product is set quite high for a relatively short
time after introduction. Even though sales will likely be modest with skimming, the profit
margin is great. This pricing approach is most often used for high-prestige or otherwise
unique products with significant cache. Once the product's appeal broadens, the price is
then reduced to appeal to a greater range of consumers. "The decision between skimming
and penetration pricing," said Hilton, "depends on the type of product and involves trade-
offs of price versus volume. Skimming pricing results in much slower acceptance of a
new product, but higher unit profits. Penetration pricing results in greater initial sales
volume, but lower unit profits."
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TATA MOTORS
INTRODUCTION
Established under the parent company, Tata Group, in 1945, Tata Motors Limited has
become India’s largest automobile company. It was the first Indian automobile company to list
on the New York Stock Exchange. Tata Motors began manufacturing commercial vehicles in
1954 with a 15-year collaboration agreement with Daimler Benz of Germany. This partnership
has led Tata Motors to not only become India’s largest automobile company but also India’s
largest commercial vehicle manufacturer; the world’s top five manufactures of medium and
heavy trucks and the world’s second largest medium and heavy bus manufacturer. Having just
entered the passenger vehicles market segment in 1991, Tata Motors now ranks second in India’s
passenger vehicle market.
Tata has enjoyed the prestige of having developed Tata Ace, India’s first indigenous light
commercial vehicle; Tata Safari, India’s first sports utility vehicle; Tata Indica, India’s first
indigenously manufactured passenger car; and the Nano, the world’s least expensive car. A full
timeline of Tata Motors Limited is supplied in Appendix A.
CEO OF TATA MOTORS
Tata Motors has appointed Mr. Carl-Peter Forster as new CEO of the group. Mr. Forster will be
in charge of overall Tata Motors operations including Jaguar and Land Rover. Mr. Forster was
the former head of GM Europe operations. On behalf of IAB, we would like to congratulate Mr.
Forster on his appointment.
A tough job lay ahead for Mr. Forster, but he could not have come at a better time. The economy
is recovering, money is back in the market, Tata Motors domestic sales in January was great
considering competition and prior months. Well it could be the January effect (new year sales
etc), but certainly a good month for Tata Motors.
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CURRENT SITUATION
COMPANY OVERVIEW
The Tata Motors group is a passenger and commercial vehicle manufacturer based in
India. The motor group was established in 1945 as part of the larger Tata Group. They have
long been known for their commercial vehicles and in the past ten years entered into the
passenger car market. Currently, Tata Motors has a line of five passenger vehicles and a large
line of commercial vehicles producing pickups, trucks, tractor trailers, tippers, and buses. Both
product lines of the Tata Motors group have seen success, but much of this has been built upon
the more deeply established commercial vehicle product line.
Tata Motors commercial line has been established for several years in many market
segments such as Europe, Africa, The Middle East, Australia, Southeast Asia, and South Asia.
Tata Motors has expanded their business and market share around the world through a series of
acquisitions. In 2004, they acquired Daewoo commercial vehicle Company in South Korea
which was South Korea’s second largest truck manufacturer. This acquisition gave Tata Motors a
significant presence in the Korean market. They have also entered into joint ventures with
companies such as Thonburi Automotive in 2006, which allowed them to manufacture and
market pickup trucks in Thailand. “We think it makes sense for Tata to expand through
acquisition (as it did in tea and steel) than spend a decade to build the business” (Lehman
Brothers). The commercial vehicle area of the business has certainly been how Tata Motors
have built their reputation, with commercial vehicles accounting for 80-85% of company profits.
They are beginning to employ a similar technique as they now expand into the passenger car
business.
Tata Motors have been making global headlines in the auto industry lately; the largest
news being their acquisition of Jaguar and Land Rover from Ford. “Tata paid 2.3 billion dollars
to Ford for the two brands that cost Ford 5.3 billion” (Carty, USA Today). This is a major step
for the company because it catapults them into the luxury car business which they are not known
for at this time. Tata, like many new businesses it acquires, is allowing this new segment of the
business to be run by previous management since they have more experience in the luxury
automotive business. “Tata will give us some space. They want us to run our business, be a
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premium British car company” (Mike O’Driscoll, managing director of Jaguar). This is yet
another large acquisition for the Tata Motors group and could create great success for the
company in the near future.
Furthermore, Tata Motors made another large announcement regarding their progress in
the passenger vehicle segment. In January they announced that they, “would release a $2,500 car
that could replace the motor scooters commonly used in developing countries to cart around
whole families” (Carty, USA Today). This is a major break through in the automotive industry
and shows how far reaching, diverse, and competitive the Tata Motors group is becoming. Soon
they will be serving customers in the high-class luxury market while still catering to their older
niches in developing countries.
CORPORATE GOVERNANCE
Since Tata Motors is a part of a large conglomerate company it needs to have a strong
corporate governance to ensure that its employees act ethically and the business continues to run
smoothly especially during the ever changing and dynamic global economy. “Tata Group’s
corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance
practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency
of the company people have a right to know what the company is doing not only to ensure ethical
practices, but for the insurance of their many shareholders whom have a right to know the inner
workings of the company. A full list of top management is visible in Appendix B.
Tata has created some models for employees to guide themselves through everyday
business practices to ensure that the corporate governance is continuously being upheld. The
Tata business excellence model is upheld by Tata quality management services. Quality
management is an in-house group dedicated to helping the various Tata companies achieve their
business objectives through specific processes. The two main processes that the quality
management services employees focus on are business excellence and business ethics. These
two objectives have helped build Tata into the strong, dynamic company it is today. These
models are entrenched in the company’s ethnical standards and Tata feels strongly about
enforcing both throughout the company. “Tata quality management services plays the role of
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supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of
business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com).
To further prove their commitment to quality and ethical practices Tata has introduced
annual quality awards for those companies conducting business with the utmost quality. These
awards are called the JRD quality value awards named after the late chairmen JRD Tata. These
awards are presented annually on July 29th, the birthday of JRD Tata. Tata has committed to
ensuring quality and ethical standards not only within Tata Motors, but throughout their many
other branches and sectors of the Tata Group. They have done so by benchmarking quality
standards through the Tata business excellence model as well as providing incentives for
companies to strive to improve the quality of their service, by awarding JRD quality
management awards.
FINANCIAL POSITION
Tata Motors have increased its earnings over the years through their various acquisitions
and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was
1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings after taxes also
increased significantly between 2006 and 2007 increasing from 336.6 million to 405.5 million in
2007. After a large drop in revenues from 2004 to 2005 when the company first went public on
the NYSE (stock prices from May 1-22, 2008 ,it has been increasing revenues greatly annually,
from 4,422.0 million in 2005 to 7,354.0 in 2007.
CORE COMPETENCIES
Tata Motors is able to maintain, as well as increase, their market share by capitalizing on
their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the
automotive industry, which means that there must be many different activities going on in all
areas of the company. As a result of the ever evolving automotive industry Tata Motors must
always be changing and one way to stay at the forefront of the industry is to make continuous
improvements in technology through research and development. One way that Tata Motors has
done this is by producing one of the most efficient and low cost vehicles on the market.
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Acquisitions, mergers, and expansion is another core competency that Tata Motors has is
embedded in their company structure and philosophy. Another core competency that Tata
Motors holds is being located in the India. This location has allowed them to understand not
only the Indian market but also the dynamics of emerging and developing markets. This market
understanding and knowledge allows Tata Motors to manufacture their products at lower costs,
sell them to emerging markets while making profits as well as take advantage of the strong labor
base in India.
RESEARCH AND DEVELOPMENT
One factor to Tata Motors success is their constant advances in automobile technology
through research and development. There is a high emphasis on thorough research that provides
the much-needed inspiration for the birth of new ideas, which in turn breathes new life into
products. They employ approximately 1,400 scientists and development officers. Tata Motors
has several research and development centers in India. The Research Center at Jamshedpur and
the Engineering Research Center in Pune are among the finest in the country (Tata.com). They
possess forums to develop and test durability, engine performance, emission, safety, design and
style, noise, hydraulics, tracks, and instrumentation. Both have won numerous national awards in
research and development efforts since their inception in 1966.
Through these advanced research centers Tata has created sophisticated emission
measurement systems and digital prototyping laboratories. Some other technologies that are part
of Tata Motors’ arsenal are those that offer improved electronic controls for engine systems and
other “vehicle drive-train and chassis systems” (Tata.com). The company is currently focused on
equipping vehicles of the future with technologies for improving communication, navigation and
entertainment. One example of these technological improvements is highlighted in the OneCAT
(Appendix E). This concept car is a fiberglass vehicle that virtually powered by air and is
emission free. The OneCAT weighs only a 350 kg and has a piston engine that runs on
compressed air. This car can run between 200 to 300 kilometers on one Euro of compressed air.
A spokesman for Moteur Development International, a company that partnered in the
development of this car said, "The engine is efficient, cost-effective, scalable, and capable of
other applications like power generation," (Autopartswarehouse.blog.com) This car is truly a
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representation of the next step in green automobiles. The car’s engine’s emission can be used as
an air conditioner in the cabin. This car is very futuristic and is still in the development stages:
“Nonetheless, Tata and Moteur Development International are confident that
OneCAT, which can accommodate three adult passengers, is competent enough to
go against potential green car rivals and energy efficient autos such as the hybrid,
bio-fuels, and electric vehicles. The ‘air car’ is targeted for release this year with a
base price of around £2,500.” (Autopartswarehouse.blog.com)
Some of Tata Motors other technological advances can be seen in the new car the Nano
nicknamed the People’s Car (Appendix E). This car, which is just emerging into the market, is
the world’s cheapest car. Tata Motors achieved this is through using new materials such as, re-
engineered plastics and modern adhesives. It will revolutionize the auto industry in India and
soon in other emerging markets when Tata starts exporting. The Nano was able to achieve its
low price and gain the attention of the entire automotive industry through its advances in
materials and adhesives technology.
ACQUISITIONS, MERGERS & EXPANSION
Like other companies, Tata Motors is always growing and expanding and the main way
they do this is through acquisitions and mergers. Since 2004, Tata Motors has merged or
acquired all of or at least part of four different companies. In March 2004, Tata Motors acquired
100 percent of the Korean based Daewoo Commercial Vehicle Company, Korea’s second largest
truck maker, for 102 million dollars. Rather than using de-culturation or assimilating Daewoo,
Tata took an integrated approach, and continued building and marketing Daewoo’s current
models as well as introducing a few new models globally just as it had been done under Korean
management.
In February 2005, they acquired 21 Percent of Hispano Carrocera, Spain-based company,
for 12 million Euro. In April 2005, Tata Motors Limited merged with Tata Finance, and lastly in
March 2008 Tata paid Ford Motor Company 2.3 billion for Jaguar and Land Rover companies
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(Tata.com). These acquisitions and mergers allow Tata Motors to break into foreign markets and
develop a much larger share of the automotive industry.
It also helps them attain the knowledge, technology, and programs that allow them to
succeed in that particular sector of the automotive industry or in a particular region or culture.
For instance, the purchase of Jaguar and Land Rover allows Tata to enter into the luxury car
market without having to research the market, build the technology, among other important
aspects of getting into a new market segment. It further helps them enter into the very
competitive and highly desirable mature markets in Europe and in future hopes of securing
market segments in the United States. Tata Motors is currently in a growth stage as stated on
their website: “Tata Motors Ltd is in a mega expansion mode. The investments would be in
product development, capital expenditure in capacity enhancement, domestic and international
acquisitions and mergers” (Tata.com).
ORGANIZATION LOCATION
Tata Motors is located in the developing country of India. This location has been and will
continue to be vital to Tata’s success. In India, Tata can take advantage of the fact that
manufacturing labor cost is only eight to nine percent of sales, compared to 30 to 35 percent of
sales in developed countries. In addition, India is one of the world’s largest producers of
automotive components which give Tata Motors direct access to many of these components. Tata
has higher bargaining power with suppliers because it is a local, not foreign, car manufacturer.
Tata Motors is able to leverage Indian automotive market because the current increase in demand
due to the improvements in infrastructure and growth of population and disposable incomes in
India. The Society of Indian Automobile Manufacturers stated, “India, where some 1.4 million
new cars are sold each year, is also a hugely attractive market for dozens of car companies and
most of them can’t risk ignoring what appears to now be a potent competitive advantage for Tata
Motors. India’s car market is expected to touch 2.2 million units a year by 2010”
(Livemint.com). Additionally, the India government has made protectionist polices and
regulations that are extremely favorable to Tata. In December 1997, the Indian government put
in place policies that require foreign carmakers to invest at least 50 million dollars in equity to
set up manufacturing operations in India. This means that Tata Motors is able to take advantage
of the low cost of labor, land assets, and overall investment practices without having to
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implement this 50 million dollar investment. Finally, Tata Motors largest competitive advantage
is that it has prospered and grown in only developing markets for over 70 years. Tata Motors has
implemented programs that allow it to prosper while maintaining low costs and high profits.
Lastly, Tata Motors has a competitive advantage simply because they are part of the
larger Tata Group. Tata Group supplies Tata Motors with access to knowledge, resources,
technology and companies operating in many different industries worldwide allowing innovation
and easy availability to access other sources.
PEST ANALYSIS
POLITICAL
Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle
East, and Australia, it needs to pay close attention to the political climate but also laws and
regulations in all the countries it operates in while also paying attention to regional governing
bodies. Laws governing commerce, trade, growth, and investment are dependent on the local
government as well as how successful local markets and economies will be due to regional,
national and local influence.
On March 26, 2008, Tata Motors reached an agreement with Ford to purchase Jaguar and
Land Rover. In order to be capable of this acquisition, Tata Motors must have a full
comprehension of the governing bodies and laws regulating commerce in the home country, the
United Kingdom, but also in countries Jaguar and Land Rover operate in.
In accordance, Tata’s headquarters in Mumbai, India, strictly controls and regulates
operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor
laws in the multiple countries where they have manufacturing plants it has to watch political
change. This will be especially vital in the future as Tata Motors continues to expand and grow
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into new markets. “While currently about 18% of its revenues are from international business,
the company's objective is to expand its international business, both through organic and
inorganic growth routes” (Tata.com). The foundation of the company’s growth internationally is
a deep understand of economic stimulation, customer needs, and individual government
regulations and laws. Although it is the headquarters ultimate responsibility to make sure each
individual office and branch is operating and abiding by the local laws, it will become
increasingly more important for that duty to be taken care of at the regional or even local level.
ECONOMIC
Operating in numerous countries across the world, Tata Motors functions with a global
economic perspective while focusing on each individual market. Because Tata is in a rapid
growth period, expanding or forming a joint venture in over five countries world-wide since
2004, a global approach enables Tata Motors to adapt and learn from the many different regions
within the whole automotive industry. They have experience and resources from five continents
across the globe, thus when any variable changes in the market they can gather information and
resources from all over the world to address any issues. For instance, if the price of the
aluminum required to make engine blocks goes up in Kenya, Tata has the option to get the
aluminum from other suppliers in Europe or Asia who they would normally get from for
production in Ukraine or Russia.
Tata Motors also has to pay close attention to shifts in currency rates throughout the
world. Currency fluctuations can equate to higher or lower demands for Tata vehicles which in
turn affect profitability. It can also mean a rise in costs or a drop in returns. But they also have to
pay attention to not just the domestic currency, the rupee, but also to the dollar, euro, bhat, won,
and pound, to just name a few. Just because the rupee is strong against the dollar does not mean
it is strong against all the other currencies. Attention to currency is important because it
influences where capital investment will develop and prosper.
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SOCIAL
Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a
company will affect how well a company performs. This includes every stakeholder from the
CEO and President, down to the line workers who screw the door panel into place, from the
investor to the customer, the culture and attitude of all these people will ultimately determine the
future of a company and whether they will be profitable or not. For this reason, Tata Motors
tends to use an integration and rarely separation technique with foreign companies they acquire.
On the other hand, some economic issues that Tata Motors face must also be looked at
from a more localized perspective. For instance, the market in India for cars is much different
than the market for cars in Italy. For one, India has over one billion more people than Italy does,
thus the market is much larger or not as limited. Second, you must also take into affect the
demographics and the average income of each market. Italians have a higher average income per
capita than Indians and Italian citizens tend to drive larger and fancier cars. For this reason, the
Tata Nano might not do so well in the Italian market. In summation, Tata Motors views the
economy from a global perspective with operations across the entire globe; however, they must
also maintain a local market understanding and knowledge when it comes to product positioning
and placement throughout the different markets Tata conducts business in.
In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at
the time Korea’s second largest truck maker. Rather than using de-culturation or assimilating
Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s
current models as well as introducing a few new models globally just as it had been done under
Korean management.
With the new acquisition of Jaguar and Land Rover, Tata will have to be careful with
how they handle the acquisition. While Land Rover is thriving while under the helm of Ford,
Jaguar was more of the trouble child. “Jaguar cost Ford some $10 billion during its 18-year
stewardship and its sales were in headlong decline, especially in America, its most important
market. Industry analysts also struggled to see what value Tata could add that had eluded Ford,
and what synergies there could be between a maker of trucks and basic cars… and two luxury
marques.” (Economist). Separation could be a good approach for the immediate future to keep
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the name of Jaguar and Land Rover distinguishable and associated with the luxury automobile
market. Overall, Tata does a good job of integrating some aspects of their large multi-national
conglomerate into new acquisitions; however, the company must also understand that separation
from the name Tata can be valuable in some social areas.
TECHNOLOGY
Tata Motors and its parent company, the Tata Group, are ahead of the game in the
technology field. The Tata Group as a whole has over 20 publicly listed enterprises and operates
in more than 80 countries world-wide. This equates to Tata Motors having lots of experience and
resources to draw from for research and development purposes. “The foundation of the
company’s growth is a deep understanding of economic stimuli and customer needs, and the
ability to translate them into customer-desired offerings through leading edge R&D” (Tata).
Employing 1,400 scientists and engineers, Tata Motors’ Research and Development team is
ahead of the pack in India’s market and right with the rest of the field internationally. Among
Tata’s firsts are “the first indigenously developed Light Commercial Vehicle, India's first Sports
Utility Vehicle and, in 1998, the Tata Indica, India's first fully indigenous passenger car,” as well
as the increasingly famous Tata Nano, which is projected to be the world’s cheapest production
car (Tata). In the automotive industry, it is becoming increasingly crucial for manufacturers to
stay on top of the technology curve with new problems always rising such as escalating gas
prices and pollution problems. Tata recognizes this and dedicates lots of resources and time into
research and development to be even with or preferably ahead of other competitors, global
trends, and changing economies. In all, an automobile manufacturer must change, adapt, and
evolve to stay competitive in the automotive game, and this is exactly what Tata is doing with
their rapid growth, and extensive research and development.
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SWOT ANALYSIS
STRENGTHS
Tata Motors excels when it comes to innovation through intensive research and
development. Their ability to make the least expensive car on the market, the Nano which will
retail for $2,500, is far beyond what any other car dealership has created. This innovation gives
Tata Motors their main competitive advantage. Tata Motors makes everything from tractor-
trailers to the world’s least expensive car. This product diversity grants them a competitive
advantage over their competitors because they can satisfy more markets and customer needs.
Another strength that Tata Motors possesses is high corporate responsibility. They donate a
portion of their profits from stock increases towards a specific charity. This highlights Tata
Motors overall desire for community improvement while also emphasizing Tata Motors’ high
morals and values which is something money can not buy.
Tata Motors is also a very eco-friendly company. One of their goals is to produce an
emission friendly car, and in 2000 Tata Motors launched the first compressed natural air bus.
This air bus requires the owner to plug the car into a standard electric plug for four hours to fill
the air tanks. This brought the concept of an “air-car” to reality and the name for this
compressed natural air car is “OneCAT.” OneCAT has no gas costs or fossil fuel emissions
which makes it a very attractive car for the more mature markets but also the upper classes in
developing countries at this point. It is also a great car to have in highly populated countries,
such as China and India, because pollution with its adverse effects is a very large concern.
OneCAT also is more efficient that any other present Hybrid car, so when inventors think they
have the best product out on the market, they actually do not. There will always be something
else to invent or improve on and Tata Motors is a prime example of that.
Tata Motors is unique in a way in which when it buys a company. Tata Motors keeps the
original management of that company intact. The company that Tata Motors purchases will look
exactly the same in terms of management and organizational structure as if it was never
purchased by Tata Motors.
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WEAKNESSES
There are strings attached with every new invention and improvement on products.
These strings are Tata Motors weaknesses and what other groups perceive as their weaknesses.
One weakness that Tata Motors faces is its inability to meet safety standards. Although they
have made the most inexpensive car out on the market, it has yet to pass all the safety standards
which is a legal factor. Some consumers and pessimists inquire as to how Tata Motors can make
such a cheap car and withstanding a car accident or not just falling apart after hitting something
once. Pessimistic people also want to believe that car manufactures are already doing everything
they can to keep costs low for the consumer, and if that is the case, then putting the cheapest car
out on the market automatically questions if it is safe to drive.
Tata Motors only have been making passenger cars for the approximately last ten years.
This can be viewed as a weakness from a customer standpoint since a decade does not seem like
a lot to consumers and therefore they will think that Tata Motors is inexperienced car
manufacturing. Consumers will wonder how a car manufacturer can be in the market for 10
years and produce the cheapest car out on the market. How can Tata Motors manufacture such
a cheap car that meets emission and safety standards being so young? This causes consumers to
be skeptical.
Another weakness that Tata Motors faces is within its domestic market. Car sales in
India are less than 1 million annually. This draws a problem because Tata Motors may not get
the sales that the company hopes for and how can they sell cars to people who are not buying
cars?
The new and innovative OneCAT still has some rough spots that need to be worked out
and one of them is that it has pollutant emissions and greenhouse gas emissions from the
generation of electricity used to compress the air. So although it is marketed as being emission
free, it technically is not and this is another weakness. Also, OneCAT only goes 62 miles per
hour for 56 miles in an urban cycle. This is not very far and Tata Motors will have to improve
on this weakness as well as the emission weakness in order to draw more comsumers to this new
automobile.
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OPPORTUNITIES
Tata Motors has already opened the doors for many new and innovative ideas, but not
only for their company, but their competitors as well which could turn into a threat. One of the
major opportunities that Tata Motor faces is that as of right now 90 percent of China and India’s
adult population do not own cars, partly because cars are costly and require more expenses after
purchased. So the market for a low-priced car is huge which benefits Tata Motors perfectly
since they produce the lowest priced car on the market. This is a huge opportunity for Tata
Motors because if they can get their feet into that market of people that do not have cars because
they cannot afford them, then they will make large profits down the road. China’s total car sales
are estimated at over 8 million dollars annually and they were the world’s second largest car
market in 2006. China’s government forecasts that demand for cars will top 20 million by 2020.
With Tata Motors in the market with the cheapest car, China’s demand for cars will probably
increase even more significantly which will in turn increase sales for Tata Motors.
Japan, North America, and Europe automobile sales went up over the years because of
demand for smaller cars increased. This demand for smaller cars is a great window of
opportunity for Tata Motors because not only are their cars small, but they are cheap and
environmentally friendly as well. Once people in these countries get Tata Motor automobiles
then their automobile sales will continue to rise.
As of March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the
British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors
since they will acquire the large knowledge base and technologies for producing and marketing
luxury vehicles. This acquisition helps them dive into the more mature markets in Japan, Europe
and the U.S. The knowledge transfer from these two companies will greatly improve Tata
Motors ability to continue to grow and flourish in both developing and developed market
segments.
THREATS
The obvious threat to Tata Motors is intellectual property rights. Tata invented the
cheapest car on the market and every automobile manufacturer wants to know how Tata did it.
Page 36 of 43
Headhunters are soon going to find out this valuable information and make it available to their
own company. This is a huge threat to Tata Motors because at first they had low competition,
but once other car manufactures find out how they invented such a low cost car, and then these
companies too will jump on board and design their own line of low cost automobiles. On one
hand this can be a threat, but on the other it may not affect Tata Motors at all because people will
still want to purchase their product since they were the pioneers of all the excitement.
Other companies are starting to compete for some of this market share. In fact, the
Pakistan’s Transmission Motor company has built a basic four-wheeler for only $2,100. This car
is considerably cheap and the Pakistan Transmission Motor company started exporting them to
Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures
that will be producing low priced cars.
Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the
Nano requires gas, but those who purchase the Nano probably do not have a lot of money and so
if gas prices keep jumping up then that market of consumers will not be able to purchase the car.
If OneCAT can be made as cheaply as the Nano then that will benefit the consumers even more
because they will get a car that does not run on gas and it will be cheap to purchase. On the
other hand, gas company will not want OneCAT to hit the market because there will be no
profits to be made off the vehicle. Gas companies have a lot of say over the automobile industry
so this could be a big threat.
Another main concern that Tata Motors faces is that cheap cars in India will have an
adverse effect on pollution and global warming because most of the population will be able to
afford the cars. With more people driving cars there will be more accidents and deaths, as well
as higher fossil fuels leaked into the environment causing even more pollution then there already
Tata Motors is family owned and this can potentially cause problems down the road because
some family members can become greedy and money hungry. Once they really start to rapidly
grow then there may be family feuds and people not pulling their part.
Another threat is the whole point of their cars being made with cheap plastic. Are these cars
durable? Will they hold together in a head-on collision? As off August 2007 there was no
further information on this topic though.
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REFERENCES :-
http://en.wikipedia.org/wiki/Price_skimming http://www.wisegeek.com/topics/price-skimming-strategy.htm#
: http://wiki.answers.com/Q/What_is_Market-Skimming_Pricing#ixzz1GsZYcSDV
http://www.brighthub.com/office/entrepreneurs/articles/108725.aspx#ixzz1GsbzXc5R
ttp://wiki.answers.com/Q/
What_are_the_Recent_examples_of_market_penetration#ixzz1GsZ3K6TH
Penetration Pricing - type, Skimming versus
penetration http://www.referenceforbusiness.com/small/Op-Qu/Penetration-
Pricing.html#ixzz1IXVU1Tj5
http://EzineArticles.com/1341563
Penetration Pricing - type, Skimming versus
penetration http://www.referenceforbusiness.com/small/Op-Qu/Penetration-
Pricing.html#ixzz1IXVh8B4o
www.sxc.hu mrceviz Case Study: How to Price Your Products to Increase Profits." Business Owner. May-June
1995.
http://wiki.answers.com/Q/FAQ/6275-28
Appendix A
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Tata Motors Timeline:
1945- Tata Engineering and Locomotive Co Ltd (TELCO) is set up as a locomotive maker at the end of World War II
1954- Company shift to making trucks in a joint venture with Germany’s Daimler-Benz
1961- Exports begin with the first truck begins being shipped to Ceylon (present-day Sri Lanka)
1977- First commercial vehicle manufactured in Pune
1983- Manufacture of heavy commercial vehicles commences
1986- Production of first light commercial vehicle
1991- Launch of the first passenger car, the Tata Sierra. One millionth vehicle rolled out.
1994- Enters joint venture to make Mercedes Benz cars in India
1999-Beings production of India’s first fully indigenous passenger car, the Indica
2002-Ends joint venture with Daimler
2002-TELCO is renamed Tata Motors Ltd.
2003-Tata Motors Ltd. Announces plan to build world’s cheapest car for 100,000 rupees (1,250 pounds or 2,500 dollars)
2004- Acquires South Korea’s Daewoo Commercial Vehicle Company and is listed on the New York Stock Exchange
2005- Buys 21 percent stake in Spanish bus maker Hispano Carrocera SA, launches mini-truck, the Ace
2006- Signs initial agreement with Fiat
2008- Unveils one-lakh (100,000 rupee) “People’s Car” also know as the Nano. Acquires Jaguar and Land Rover.
Appendix B
Top Management of Tata Motors Ltd.
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Name Age Since Current Position
Sait, Zackria -- 2007 Vice President - Technical Services
Mani, Shyam -- 2007 Vice President - Sales & Marketing, CVBU
Rajarao, M. -- 2007 Vice President - Manufacturing, Pune
Girotra, K. -- 2007 Vice President - Lucknow Works and FBV
Tambe, S. -- 2007 Vice President - Human Resources
Thakur, R. -- 2007 Vice President - Finance
Gurav, P. -- 2007 Vice President - Corporate Finance - Accounts and Taxation
Krishnan, S. -- 2007 Vice President - Commercial, PCBU
Dube, Rajiv -- 2007 President - Passenger Cars
Arya, A. -- 2007 President - Heavy and Medium Commercial Vehicles
Mehta, V. 73 1998 Non-Executive Independent Director
Wadia, N. 63 1998 Non-Executive Independent Director
Palia, Sam 69 1998 Non-Executive Independent Director
Soonawala, N. 72 1989 Non-Executive Director
Irani, Jamshed 71 1993 Non-Executive Director
Gopalakrishnan, Ramabadran 62 1998 Non-Executive Director
Tata, Ratan 70 1996 Non-Executive Chairman of the Board
Mashelkar, Raghunath 64 2007 Independent Director
Mankad, A. -- 2007 Head - Car Plant
Telang, P. 59 2007 Executive Director - Commercial Vehicles
Sethna, H. -- 2007 Compliance Officer, Secretary
Ramakrishnan, C. -- 2007 Chief Financial Officer, Executive Director
Kant, Ravi 63 2005 Chief Executive Officer, Managing Director, Director
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Appendix C
Above: Tata Nano
Below: Tata OneCAT
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