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There’s about a couple of weeks left for the Nano to start hitting showrooms and the streets… There does not seem to be a lot of excitement in the market about the 1 lakh rupee car other than for the reason that well… its a one-lakh-rupee-car!

What however spurred me on to write this post on the Tata Nano is my analysis on the thought process put in behind the vehicle.  The nano is not just about a car that costs one lakh rupees… Its about a huuuuuuge time-bomb thats gonna go off the moment Ratan Tata says Go!  A time-bomb thats going to start ticking in every CEO / MD’s office when they realise that the market is no longer theirs… The rules to the game they started just got re-written… The processes and manufacturing setups they had just got a royal trip down the drain…

Here is my statement of reason:

The Target Market:

The nano is being targeted at a market that is extremely price sensitive.  When you bundle this with international grade quality, you get a direct WIN!!!  The nano is also targeting a segment that is already booming, the small car segment, but here, they’re changing the rules of the game.  Same quality merchandise, slightly smaller quantity, but perfectly priced to just touch the lower segment.

The same technique a vegetable vendor uses to compete against retail stores.  Same quality, more or less same source for the commodity, easier availability, lower price.  I’d go with the vegetable vendor for tomatoes and paalak as opposed to walking into an air-conditioned Spar supermarket.

The Volume Game:

From what I understand of selling commodities in a market, there are two distinct ways I’ve noticed people do it with:

1. Sell it at high prices because of quality and brand value and make the cut based on profit per commodity sold a.k.a Mercedes, Honda, Apple <AND>
2. Sell it at low prices at lower profit margins and make the cut based on volumes moved a.k.a. Bajaj, Nokia, Saravana Stores, et. al.

Tata, as we can see, is playing the game using strategy no. 2.  “One Lakh Rupees” is an amazing price point!!! They have been able to achieve this in a way no one else could imagine.  They have reduced cost of production by bringing all component vendors under one roof (a.k.a. one production area / SEZ) thus reducing transportation costs.  They have also convinced component vendors to operate on a volume based margin and make smaller but numerous profits rather than making one big million dollar sale and taking a 15-20% profit margin out of it.

The Pricing Model:

The pricing of the “One Lakh Rupee” car is directly attributed to the afore mentioned to points.  But hey, This for me is absolute ingenuity.  The teams inside Tata have hit the nail bang on the head with the pricing and in addition to it, they have also looked into making the one-lakh car easily affordable for people that would want to own one.  Their tie-ups with numerous banks offering loans is a gimmick they picked up from Bajaj ( the guys who started with Zero % Auto-finance) and pushed it across to make sure that the work put in does not go to dust.

The concerns:

This is a very important point.  Yes, the Nano is hitting the roads in a couple of weeks from now.  Hyundai and Maruti must be peeing in their pants right away!  How they would handle the uproar is something i cannot fathom citing lack of business sense!!!

But what I’m more concerned AND interested in looking at, is, how Two-wheeler manufacturers are going to respond to it.  Bajaj, TVS, Honda, and the likes are now going to get kicked in the nuts.  This is how Tata is positioning itself in the market:

Hey, you’re buying a bike, you are taking a loan of 65k+ and getting two wheels.  Here’s the thing: Take a loan from us, We’ll give you a nano, it has 4 wheels instead of 2, you can pay us back at the same rate that you’d pay back for your 2 wheels, and guess what, 4 people can travel at the same time and you wont get wet too!!!

Bajaj is already in the news for planning to make 4-wheelers but there is a lot that needs to happen before they can compete with such a sound business plan!

The forgotten JLR:

The nano has created so much of news for Tata (good, bad and otherwise) that the 2.3 billion dollar Jaguar – Land Rover has slipped to the sidelines…  What Tata would do to get Jaguar into the market is something we would have to wait and see…

Closing Note: Will I buy a Nano?

The answer currently is NO.  My reasons:  Well, they are personal.  I have never been comfortable with a small car.  I am used to the larger ones and that would be what I would pick up.

DISCLAIMER: Nope, I am NOT a market analyst.  Nor am I a business guy.  I’m just another lame Software Engineer who put in a bit of logic to the equation of the Nano to come up with the post   This blog post came out as a result of the conversation Saurabh Minni a.k.a. the100rabh and I had this morning.

Chao…