Wednesday, November 20, 2013

Mega market for a Nano car

Tana Nano is a great example of creating a blue ocean by extending the known boundaries of a red ocean market.

The automobile market in India is not very different from the US where there are a more than a few companies which are dominant across different segments. Tata Motors announced that it would launch a car for the common man, at about $2,000 (when it was announced). The segment did not exist. The closest alternative was still about 3 times as expensive as the proposed car.

Let us analyze the features of this blue ocean creation:
Industry
Key blue ocean creation
Was the blue ocean strategy created by a new entrant or an incumbent?
Was it driven by technology pioneering or value pioneering?
At the time of the blue ocean creation, was the industry attractive or unattractive?
Automobile
Tata Nano
(Cheapest car in the world)
Incumbent
Value pioneering
(Leverage economies of scale and implement several cost cutting innovations)
Attractive
(Increasing number of middle-class population)


Two-wheelers are extremely popular in India because they are cheap and easier to navigate in heavy traffic. People who were looking to buy a two-wheeler, but had a little extra cash to spare would not consider a buying car since the cheapest car was about 6 times more expensive than the average cost of a two-wheeler. This is the primary market that Tata was targeting. They also focused providing excellent mileage as the market was extremely price sensitive to fuel. The Nano was marketed as the “People’s Car”, in a country of over a billion people, where the majority do not have a car at all.

It is true that the sales were not very impressive after the initial launch, but some of it can be attributed to poor marketing, and a bit of bad luck. What is notable is that a new market was created where none existed, thus the blue in an ocean of red.

Reference: http://www.icmis.net/aims-international/aims9/aims9cd/pdf/P9475-Final.pdf

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