TATA nano

The economics of a small car

Case Overview ‡ ‡ ‡ ‡ ‡ Tata Nano The People s Car .000. Mobility for the masses Phenomenal market response Analysis of pricing model and marketing strategy Societal Consumer Surplus? . priced @ INR 100.

Deliverables Analysis of ‡ Demand function ‡ Consumer surplus ‡ Utility maps ‡ Substitution and income effect ‡ Potential drawbacks .

funds worth INR 25. LX ‡ 2.An outcome of extensive R&D. unique lottery for the first 1 lakh owners.03 lakh bookings. involving a lot of patents. ‡ More than Value for Money ? .Introduction to the nano ‡ World's cheapest car ‡ Low cost model . better space and aesthetics ‡ Euro IV. CX.000 millions . BS III compliant ‡ Available in 3 segments Base. ‡ Uncompromised build quality .

64 millions 1.2 millions 1.automobileindia.com.07 was 1. the net sales (in units) of budget cars in yr 2006. Considering the fact that the Indian automobile industry is growing at the rate of 17%.92 millions .Demand function According to www.4 millions 1.2 million. the following market forecast model can be made: Fiscal Year 2006 2007 2007 2008 2008 2009 2009 2010 Sales (in Units) 1.

‡ nano acts a substitute to the second hand cars as well as 2-wheelers. ‡ Introduction of the nano would reduce the average cost of the 4 wheeler segment and push up sales of the 4 wheeler segment ‡ The substitution effect can be seen in the accompanying graph (from A to B) .Avg price of 2 wheelers P4 Avg price of 4 wheelers X. ‡ The budget line for consumers of 4 and 2 wheelers can be represented as M = P2.X + P4. Y are the corresponding quantities) ‡ Utility map for the 2 and 4 wheeler segment can be prepared as follows.Y (P2 .

Substitution Effect .

Consumer Surplus An average decrease in price causes consumer surplus to increase. as consumers save more. Shaded area represents the increase in surplus. .

it would not breach the one lakh unit mark. Even then. It would remain modest at just about 35. ‡ WHY? .‡ JD Power Asia Pacific said that the demand for Tata Nano is not going to be phenomenal.demand.000 units in 2009 and a year later when Tata Motors' Sanand plant is likely to come on stream .

Utility Map ‡ The higher level of utility of Nano can be shown in the indifference map vis a vis utility derived from 2 wheelers. .

‡ Product life cycle for a normal product in the market is shown: ‡ But the product life cycle for Nano is apparently different since the demand in the introduction stage is very high. . leading to exceptional sales at inception. due primarily to the pricing model and marketing strategy.

Full cost analysis = Private costs + Social costs Environmental cost and air quality cost add up to social costs. Decrease in effective consumer surplus from society s perspective.Potential drawbacks ‡ Greater pollution hazards per capita as more cars come into the market. c. d. increase in fuel consumption and price etc. . b. ‡ Greater traffic congestion ‡ Resistance to reusability of cars a. External costs could be impact on environment.

Conclusions ‡ Though nano has been a phenomenal success in the Indian markets. service costs ) . its sustainability would be subject to ± Societal consumer surplus ± Absence of other competitively priced alternatives (Cross elasticity) ± Additional costs associated (maintenance.

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