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Marketing Audit Report of:
The Tata Motors entry in the
United Kingdom market
Author: Suellen de Sa - ID: 20092256
Date: 30th of august 2010
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Executive Summary
This report is a Market Audit about the Tata’s marketing plan which has as
objective analyse the possibility to the entry in the UK automotive market. The
study was conducted through the tree mainly environmental and internal
analysis of the company: PEST Analysis, 5 Forces Analysis and SWOT.
In spite of the Tata Marketing Plan be considered a clear and objective
study because it was able to choose a good entry strategy due a good
environmental and internal analysis, it have not present a good plan about the
marketing mix, that could be essential to the survival of the product and
consequently the company in the UK market.
Therefore the marketing audit suggests a depth and structured study
trough the competitors and consumers behaviour to be able to answer the
questions about the size of the market, market share, market forecast in a short
and long terms, target price and consumer expectations.
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1. Introduction
1.1 The Company: Tata Motors
Tata Motors is India's largest company in the automobile and commercial
vehicle sector with upwards of 70% cumulative market share in the domestic
commercial vehicle segment, and had a 0.81% share of the world market in 2007
according to OICA (International Organization of Motor Vehicle manufacturers) data.
The OICA ranked it as the 19th largest automaker, based on figures for 2007, and the
second largest manufacturer of commercial vehicles in the world. The company is the
world’s fourth largest truck manufacturer, and the world’s second largest bus
manufacturer. In India Tata ranks as the leader in every commercial vehicle segment,
and is in the top 3 makers of passenger cars. Tata Motors is also the designer and
manufacturer of the iconic Tata Nano, which at approximately USD 2.300, is the
cheapest production car in the world.
In 2004 Tata Motors bought Daewoo's truck manufacturing unit, now known as
Tata Daewoo Commercial Vehicle, in South Korea. It also acquired Hispano Carrocera
SA, now a fully-owned subsidiary. In March 2008, it acquired the Jaguar Land Rover
(JLR) business from the Ford Motor Company, which also includes the Daimler and
Lanchester brands and the purchase was completed on 2 June 2008.
Tata Motors has auto manufacturing and assembly plants in Jamshedpur,
Pantnagar, Lucknow, Ahmedabad, Sanand and Pune in India, as well as in Argentina,
South Africa and Thailand.
1.2 Outline of Marketing Plan
The focus of the Marketing Plan is analysing the possibility of Tata Motors’s
entry in UK car market. It is important to note that this study was conducted in mid
2006, before the purchase of the two British automakers (Jaguar and Land Rover).
The UK market was chosen between 2 other potential markets – USA and
Russia because it presents favourable factors according of the company objectives
such as high growth in specific segments, low barrier of entry and besides it they would
be the gateway to the strategy of expansion at EU.
The analysis of environmental external and internal factors have identified that
to achieve the overall success performance the marketing strategy plan is necessary:
fast entry on UK market – mainly due the high competitive pressure – Strategies to
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protect company’s share on Indian market – over 80% of the company’s revenue stems
from sales on Indian market.
Whereas the necessity of a fast entry on the market and for minimize the risk of
failure, the joint venture mode of entry was chosen. Through the analysis of the
Marketing Mix, the marketing plan has presented the USV car segment as the target
market and the model X1 will be the first product to entry into it.
According to the marketing plan, to protect the India market against the
competitors who are expanding their business aggressively, the Tata Motors should
implement an aggressive defensive strategy that would be increase the customer
loyalty by offering value-added benefits.
2. Analysis and Discussion
2.1 PEST Analysis
Considering all the spheres of the PEST analysis we might say that it includes
the most important aspects in a clear and objective way. In the lines below we have
some features about all the 4 factors that could be added to improve the analysis giving
more information to the making decision process, therefore it also include some
important points about Legislation and Environment sphere that was not showed in the
marketing plan at all.
A – Political
In the political factor they have already pointed the 5 mainly political conditions
that have a strong influence to the UK automotive industry witch are oil prices,
administrative barriers, car park legislation, political relationships and the foreign
ownership regulations. The first and the most important one is the question of the oil
prices. When the price of the oil rises, it clearly concerns the auto industry because the
companies are competing with each other to meet the new demands for more fuel
efficient consumer conscious at reduced price. There is no doubt that it is affecting the
profit margin of the company. Moreover, increase oil price is also affecting the type of
vehicles demanded by the customer and the way those vehicles are designed (strain
on the sales of luxury and premium because of the large-size engines (more than two
litres).
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To make the political analysis perfect they could add the factor that European
Union will continue to have an impact upon the automotive retail industry through
modifying existing and introducing new legislation.
B - Legislation and Environment
There are four important points about the UK market legislation that were not
tipped in the marketing plan which definitely influence in the strategy to achieve the
goal of the entry in this market. They are:
• Block Exemption legislation relates to the way in which new vehicles are supplied,
distributed and dealt with after they are sold. Recent amendments to Block Exemption
legislation at the European level has changed the traditional distribution methods and
opened up the market to increased competition. Some industry players have suggested
that little impact has been felt as a result of the amendments to Block Exemption
Legislation. In the future it is not known if this will have an impact upon the industry
further. Possible outcomes are widely debated within the industry.
• The growing awareness of climate change issues and waste pollution has led to a
number of legislative directives and government policies aimed at reducing the
negative environmental impact of the UK automotive industry.
• The End of Life Vehicles Directive (ELV) is a complex piece of legislation that aims to
increase the levels of re-use and recycling of End of Life Vehicles (vehicles that are to
be scrapped), improve environmental standards at sites processing End of Life
Vehicles and limit the use of material harmful to the environment in new vehicles. The
European aftermarket is now preparing for ‘End of Part’ legislation. This means all
aftermarket suppliers, new and remanufactured, will be responsible for the disposal of
their parts, not just new car manufacturers.
• Addressing the automotive industry’s contribution to climate change by moving to low
carbon fuel will require a technology shift for both fuel and vehicle technology.
C – Economic
Although the market plan gives a deep analysis trough the market aspects
which are size, maturity and the growth potential of the target market, they have not
given much importance to some specific economic factors such as:
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• Fluctuating interest rates will continue to have an impact upon consumer confidence
to borrow and spend, affecting disposable income, and potentially affect new car
demand.
• Diversity of taxes is negatively influencing opportunities for global market
convergence.
• Garages need to expand and exploit new revenue opportunities such as the higher
margins offered through the sale of car financing.
D - Socio-Demographic/Economic/Cultural Factors
Across the PEST analysis, the social factor is the most superficial since only
some aspect about lifestyle was briefed. Still considering the consumer behaviour
aspects some important points might be included in the analysis such as:
• Customer negotiation skills are improving as they become more aware of the power
they hold over retailers and aftermarket players. They also demand optional extras
such as service and finance packages or material ‘add-ons’ if they can obtain them,
which potentially decrease margins for retailers.
• Increased customer sophistication has challenged the way in which new cars are
sold. Organising supply chains to enable ‘build to order’ sales strategies, such as
preferred interior/exterior fittings, will increasingly become a growing trend. In the future
this will also apply to distribution. Alternative distribution channels such as using the
telephone to buy cars are becoming popular and therefore sales strategies must
account for this.
E - Technology and Innovation
Technological improvements are making it easier to disseminate information,
both technical and customer oriented which will make the industry more competitive as
players learn to capitalise on the opportunities that information sharing and knowledge
management offer.
The primary innovations within the industry at present surround optimum
dealership network structures and how to organise in order to compete effectively and
achieve maximum economies of scale. Much of this is likely to be achieved through
further consolidation, though some companies have already experimented with
alternative network structures.
Other innovations involve the development of value adding packages and
extended warranties to increase the attractiveness of packages and tie customers into
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networks for longer. Diagnostic equipment will become increasingly technologically
orientated.
2.2 Five forces Analysis
A - Threat of new entrants
The analysis of new entrants should be one of the most important macro
investigations done. The analyses findings could give strategic information in terms of
entrance process and protection market. However, the marketing plan has considered
in a very superficial way only the high level of entry barriers and the potential of
Chinese manufactures.
They should go deeply trough the sources of entry barriers which are capital
requirements, economies of scale, cost advantages, product differentiation, access to
channels of distribution, governmental and legal barriers, and retaliation.
Capital requirements – The capital costs of getting established in the UK car industry
can be large enough to discourage the new entrants. This market is protected by the
capital costs of establishing R&D, production and service facilities for supplying the
cars.
• Economies of Scale – Due the intensive and massive use of the capital the car
industry require a large-scale operation to be efficient. Nevertheless, the problem for
new entrants is the choice between entering on a small scale and accepting high costs,
or entering on a large scale running the financial risks while they build up sales
volumes.
• Cost Advantages – Established UK companies may have a cost advantage over new
entrants simply because they entered earlier. The cost advantages result from the
acquisition of low-cost sources of raw materials and also from economies of learning.
This impact could be absorbed with a joint-venture strategy is used.
• Product Differentiation – In terms of product differentiation, the new entrants have to
face the advantage of brand recognition and mainly customer loyalty. In other words,
the brand’s power acts can be a significant entry barrier.
• Channels of Distribution – Limited capacity within distribution channels, risk aversion
by retailers, and the fixed costs associated with carrying an additional product result in
retailers being reluctant to carry a new manufacturer’s product.
• Retaliation – One of the biggest barriers to entry also can be the possibility of
retaliation by established car companies. Retaliation against Tata may take the form of
aggressive price-cutting, increased advertising, sales promotion, or litigation
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considering the size of the competitors such as Land Rover, Toyota and Suzuki in the
SUV’s segment.
B - Rivalry between Established Competitors
The competitor’s analysis should be more detailed and specific. They determine
the strategies to be used in a highly consolidated market, which the threat of intense
prices wars is real, however is not possible to understand the particular competitors’
strategies or how each competitor acts in the market. Moreover, they present the
strategies in a general context considering the market as a tough competitive
environment. Thus, the strategies cited are supply chain improvement, new product
development and serving the needs of emerging market segments.
Considering the high risk of entry and the size of the capital investment the
rivalry analysis should be shared in micro analyses about the three points below:
• Concentration – referring to the number and size distribution of firms competing within
a market.
• Diversity of Competitors – determining how similar the competitors are in terms of
origins, objectives, costs and strategies.
• Product Differentiation – the more similar the offerings among the rivals, the more
willing customers are to substitute and the greater the incentive for companies to cut
prices to increase sales.
C - Buyer’s bargaining power
Despite the market plan consider a very strong bargaining power due to high
intensity of competition and increasing overcapacity UK issue, is important to note that,
historically, the bargaining power of automakers went unchallenged, even consumers
are very price sensitive, they don't have much buying power as they never purchase
huge volumes of cars.
D - Supplier’s bargaining power
In the relationship between the automotive industry and its suppliers, the power
axis is substantially tipped in the industry’s favor. The automotive industry is comprised
of powerful buyers who are generally able to dictate their terms to their suppliers. There
are specific characteristics that make members of the automotive industry powerful
buyers: (1) there is not a grand proliferation of companies manufacturing automotive,
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(2) automotive parts (e.g., oil filters, mufflers, belts, etc.) are standardized commodities
and these parts are only used on automobiles; and (3) backward integration can and
does occur.
In the relationship between the automotive industry and its ultimate consumers,
purchasers of finished vehicles, the power axis is tipped in the consumers’ favor.
Consumers wield the greatest power in this relationship due to the fairly standardized
nature of the automotive commodity (a vehicle) and the low switching costs associated
with selecting from among competing brands. However, the automotive industry
remains marginally powerful due to the large customer to producer ratio. The
automotive industry is a dynamic place. With the forces above at play, and with history
as a guide, it is safe to say that the automotive industry will continue to change, evolve,
and adapt.
E – Threat of substitutes
To complement the marketing plan analysis is important to say that the threat of
substitutes to the automotive industry is fairly mild. Numerous other forms of
transportation are available, but none offer the utility, convenience, independence, and
value afforded by automobiles. The switching costs associated with using a different
mode of transportation, such as train, may be high in terms of personal time (i.e.,
independence), convenience, and utility (e.g., luggage capacity), but not necessarily
monetarily (e.g., round trip train fare on MARTA would most likely be less expensive
than the cost of fuel consumed on a similar round trip, daily parking, car insurance, and
maintenance). The exception to this statement occurs in the global urban areas with
high population densities. In these areas, the substitutes available (e.g., walking, mass
transit, bicycles, etc.) can be less costly than automobiles and thus alternative modes
of transportation are often preferred.
2.3 SWOT Analysis
According the research was possible to find out some aspects about internal
(strengths and weakness) and external (opportunities and threats) factors that were not
showed in the marketing plan.
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A – Strengths
• Tata’s internationalisation strategy so far has been to keep local managers in new
acquisitions, and to only transplant a couple of senior managers from India into the new
market. The benefit is that Tata has been able to exchange expertise.
• Tata’s management is strengthened by the collective experience of its partners and
acquired companies – this includes general management, marketing, sales and
operations.
• Tata’s buying power is enhanced and leveraged through its size.
B – Weaknesses
• One weakness which is often not recognised is that in English the word 'tat' means
rubbish. Would the brand sensitive British consumer ever buy into such a brand?
C – Opportunities
• Joint ventures in other countries allow TATA motors to easily enter into new market.
D – Threats
• Sustainability and environmentalism could mean extra costs for this low-cost
producer. This could impact its underpinning competitive advantage. Obviously, as
Tata globalises and buys into other brands this problem could be alleviated.
• Rising prices in the global economy could pose a threat to Tata Motors Limited on a
couple of fronts. The price of steel and aluminium is increasing putting pressure on the
costs of production. Many of Tata's products run on Diesel fuel which is becoming
expensive globally and within its traditional home market.
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3. Conclusions and Recommendations
Although the marketing plan present some gaps and some superficial analyses
it still could be a good foundation to answer the marketing issue: entry in the UK
market.
In general the PEST and Five Forces analyses have provided a good overview
of the environmental factors to make possible to choose the best strategy with less risk
of failure to entry the market. In spite of the strategy of entry had been chosen through
a good environmental analysis, the marketing mix can be considered very superficial.
The marketing mix has defined the target market (SUV segment) however it have not
given any tangible information such as the market size, rate of growth and forecast.
Moreover to define the strategy of price, promotion and place it should give
information and analyses about consumer behaviour and especially about competitors
in the target market. In this case the company should conduct one structured and
formal market research specifically in the SUV segment to identify: who are the
competitors? What is the market share segmentation? What is the forecast for the
short and long terms? Who are the customers of this market? What are the
expectations of the costumers? How much are they willing to pay for the new car?
Moreover, whereas one of the biggest barriers to entrance in the UK market would be
the brand’s power of the competitors, the marketing mix must consider the necessity of
incur in additional advertising and promotional costs.
Whereas the joint venture entry strategy is strength for Tata, since it has chosen
it as the main strategy for the business expansion in the world, and it has been
success, the risk of failure is decreased but not absent, thus the details and
suggestions of this audit report should be considered before any action.
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4. Appendices
4.1 The Marketing Plan
Despite the global tendency for the significant fall of car sales there are certain
car segments which experience dynamic growth. According to Datamonitor (2006b) the
sales of commercial vehicles and sport utility vehicles were very healthy. Windecker
(2005) stresses the influence of socio-cultural forces which formed the increased
preferences towards more fashionable, sport-type, SUV equipped cars. The extremely
high growth of SUVs was identified in US and UK.
The focus of Tata’s market entry will be UK. There were several reasons for
selecting UK as the target market. These favourable factors were the status of India as
the favourable economic agent, UK Car market dynamics and potential, language
similarity. The other countries which were considered as potentially attractive were: the
USA – the largest market size in the world, Russia – emerging market with significant
sales potential. The option of the USA as target market was declined due to extremely
high quality requirements and other non-tariff barriers which make it hard for a new
entrant to enter this market. Besides, this market is highly mature and experiences
extreme level of competitive pressure. With regards to Russia, there were several
unfavourable factors which made it less attractive then the UK – the uncertainty of the
further economic state, high entry barriers and no well—developed dealership network.
Analysis of External Environment of the UK market
There are numerous numbers of factors that might be included into P.E.S.T.
analysis. But due to various limitations (time, word limit), the factors will be outlined,
whereas the major focus will be made on several sub-factors only (according to the
Pareto Principle, it is likely that about 20% of the factors will represent 80% of the
potential effect on the business (Wit & Meyer, 1998).
Political
Political and legal factors play the role on the development of the industry.
These factors shape the rules of competition, operational costs and supply chain
requirements.
Oil prices resulting from international instability – The special attention shall be
given to oil prices and its affect on the market requirement. According to Mintel (2006)
the increase of oil prices has created a strong tendency towards small engines, hybrid
engines and diesel engines. Current high level of oil price increase the strain on the
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sales of luxury and premium cars, the majority of which are equipped with large-size
engines (more then two litres).
Administrative barriers (quality controls and operations requirements) (KPMG,
2004) – Administrative barriers need to be seriously concerned as various
requirements for safety standards and emission level might increase the costs of
production and reduce the operating profit margin.
Car park legislation – According to Mintel (2006) the UK experience the threat
of high overcapacity with the excessive traffic load of road networks.
The political relationships between countries of operations (regimes of
favourability/protectionism) (Hill, 2002) – India cooperates with the UK within the
regime of favourability which implies the certain benefits as reduced tariff and non-tariff
barriers.
The foreign ownership regulations (The market expansion mode (Hill, 2002) –
At the present time the UK is considered as one of the most pro-FDI country in EU. The
large number of industries, including automotive one, are deregulated. It means that
foreign regulation provides foreign companies with flexibility of choosing between all
possible entry and expansion modes.
Economic
One of the major location choice determinants is the current and future demand
conditions as they will affect the market growth potential, pricing strategy and
operations margin and the potential of the return on investment.
The target market size – According to Mintel (2006) since 2001 there has been
a steady market growth by size and value. The current UK car parc is estimated to
accommodate 31 million units. The market value was contributed by the steady growth
of average price level. The present market value is estimated to reach the level of £31
billion
The maturity of the target market – The UK market is viewed (Mintel, 2006) as
highly mature. The current maturity causes overcapacity issue and significant sales fall
of particular car segments.
The growth potential of the target market – The overall UK market experiences
negative growth due to the maturity issue. Nevertheless, certain the sales of certain car
segments have significant growth potential due to the impact of socio-cultural and
technological factors.
PDI – According to Mintel (2006) the strong growth of GDP (10% between
1998-2005), personal disposable income (PDI) (19%) and consumer expenditures
(18%) reflect the high level of consumer confidence. Mintel (2006) claims that in terms
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of the purchase of new cars consumer confidence has significantly fallen. By the
present moment UK consumers have been reluctant to take out new debt and instead
are choosing to service their existing debt. Additionally the levels of mortgage equity
withdrawal have declined, what indicates that UK consumers do not seek alternative
funds to buy expensive items like cars.
Currency stability – The current strong state of British pound against other
currencies have created various benefits for manufacturers consumers operating in
pound zone such as predictability of operations and minimised currency fluctuation
risk .
Labour costs – As the outlook of the automotive industry highlighted, the cost
factor and the capability of direct and indirect costs becomes one of the key issues in
maintaining competitive advantage. According to the opinion of the industry specialists
(KPMG, 2004), one of the key issues that will influence the operations location decision
will be labour-specific costs. According to survey (KPMG, 2004) industry specialists put
a major emphasis on the labour-specific cost saving. Moreover, 85 % of the
respondents agreed that during coming five years there will be a major increase of
labour specific costs (cost of pensions, health care, and legal services) in US and EU .
The expansion of existing political and economic blocs (EU) – The importance
of the recent further expansion of EU is in the enlargement of the EU as single market.
In case of successful expansion on the UK market, Tata might consider the further
expansion in certain EU countries. According to estimations of Nieuwenhuis & Wells
(2003) the attractiveness of EU as the target market for a car manufacturer will remain
high. They claim that the attractiveness of EU as a target market will be maintained by
the increase of its market size and value as the outcome of the extension of EU zone.
However the current maturity of the market, excessive completion and demand trend
suggests that the share of Europe will drop.
Social
Demographic factors – Demographic factor is one of the key social factors. It
affects lifestyle, consumer trends, the type of risk aversive behaviour, spending power
and value per customer. The state of demographic trends allows building projections
for the use of particular type of products. The current UK demographics have
undermined the sales of family cars
Lifestyles – The change of lifestyles and habits have a direct impact on the
consumer expenditures. For instance, Mintel (2006) points out the recent increase of
preferences for second car ownership. Mintel (2006) adds that the impact of lifestyle
factors such as fashion ability and luxury preferences are so strong that it removes the
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negative effect of market maturity and oil prices in certain car segments. Thus, against
all odds, SUVs and luxury cars experience healthy growth, whereas the sales in other
car segments have fallen dramatically.
Technological
The development of information technologies – The current development of
Internet opens new transactional capabilities. Currimbhoy (2004) suggests that
continuous development of technological solutions, especially in the area of digital and
communication technologies create new operating opportunities such as new
marketing mix channels, new purchase environment (e-commerce) and new market
research tools. According to Mintel (2006) the number of leading car distributors
develop e-commerce to counter the problem of overcapacity.
The impact of new technologies on supply chain architecture – The
development of e-exchange channels between supply chain agents becomes the
source of strategic advantage (Currimbhoy, 2004) as it creates the ability of fast market
response and better value chain quality control.
The review of micro factors affecting UK car business
Competitors’ bargaining power
The UK automotive market is highly consolidated. The major rivalry involves
Ford, GM (Vauxhall), VW, Renault, Peugeot, Toyota, BMW, Citroen and Honda. The
presence of powerful competitors with established brands create a threat of intense
price wars and poses s strong requirement for product differentiation. According to
Mintel (2006) the tough competitive pressure require increasing promotional costs,
overcapacity introduces a significant price pressure. The present market conditions are
so tough, that certain manufacturers had to close certain plants to cut the costs and
survive on the market.
At the moment, the major competitive strategies are supply chain improvement,
new product development and serving the needs of emerging market segments (Mintel,
2006). The emerging opportunities requires the extremely high level of operational
responsiveness and leaves little space till market opportunity will be leveraged by
competitors.
Buyers’ bargaining power
Due to high intensity of competition on the global scale and increasing
overcapacity issue UK buyers experience very strong bargaining power. According to
Mintel (2006) buyers have indicated a high level of bargain-seeking behaviour.
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Suppliers’ bargaining power
Though vehicle manufactures have consolidated forming large entities it did not
make a significant shift of bargaining power in OEM-suppliers relations. According to
Veloso & Kumar (2002) the consolidation in the OEM sector has triggered the
corresponding consolidation of different supplier groups. Demand chain partners, car
dealers, especially the large ones do experience large bargaining power in the light of
the overcapacity issue.
The threat of Substitutes
Apart from direct competitors (public transport) cars compete with other
transport services: air, rail and sea. The increasing importance of door-to-door
transportation and environmental concerns decrease the current threat of other
transportation means as substitutes. One of the major sources of substitute threat
comes from the sales of second-hand cars. According to Mintel (2006) the steady
accumulation of second-hand cars has become on of the major reasons of the dramatic
fall of the sales of new cars.
Threat of New entrants
The high level of entry barriers (extremely consolidated industry, well-developed
value-added chain, R&D capability, investment capability in promotions and new
product development) minimises the threat of new entrants. Nevertheless, due to
globalised nature of the industry the notion of new entrant is not that clear-cut, since
existing players might enter new geographical markets. Datamonitor (2006) stresses
the future potential of Chinese manufacturers to flood EU markets in case protectionist
measures are not introduced by EU countries.
SWOT analysis
Assessing the external and internal environmental factors, the following picture
can be drawn:
Strengths
• Strong revenue growth – According to company’s annual report (Tata Motors,
2006) the company registered strong operational growth of 32,5%, whereas the
revenues from the international operations grew by 149%.
• Diversified product portfolio – Company operates in different market segments
including passenger cars, trucks, medium and heavy commercial vehicles, light
commercial vehicles, utility vehicles and buses.
Weaknesses
• High dependence on Indian market – over 80% of the company’s revenue
stems from sales on Indian market.
Opportunities
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• The further expansion on the EU market;
• The increase of global presence in SUV segment;
Threats
• Further increase of competitive pressure on Indian market – At the moment
the Indian market is already shared between such strong competitors as GM, Ford,
Toyota, VW and Honda. These companies are expected (Datamonitor, 2006a) to
increase their presence through licensing agreements, wholly owned subsidiaries and
joint ventures. Datamonitor (2006a) envisage additional threat stemming from local
automotive firms provided that they gain access to debt and equity financing.
• Overall problem of liquidity – As the case study highlighted, Tata Group
allocates significant investment flows in IT sector. The failure of this capital to be
returned might put financial pressure on all business areas, including Tata Motors.
• Slow pace of market entry – Due to the high competitive pressure of UK
market, the market window for Tata Motors entry is narrow. The slow pace of entry and
wrong timing decision might undermine the company’s success on this market.
Key success factors
In terms of the overall successful performance of the Tata Motors , the analysis
of environmental and internal factors study identified the following integral elements:
• Fast entry on UK market;
• Implementation of strategies designed to protect company’s share on Indian
market;
Defensive measures on Indian market
To protect its market share against the aggressive expansion of competitors the
company needs to implement defensive strategy. According to Veloso & Kumar (2002)
one of the strongest available tools is the increase of the customer loyalty by offering
value-added benefits such as affordable price, attractive credit conditions, post-
purchase service. Veloso & Kumar (2002) note that car maintenance might account for
up 70% of the overall car’s lifetime value. The company should develop its service
centres network to maximise its geographical coverage and pre-empt the entry of
competitors.
Marketing strategy
Market entry choice
To maximize the speed of entry and minimize the risk of failure, Tata Motors
should choose the entry mode which provides the fast access to customers. At the
same time, the entry mode shall secure certain long-term benefits like access to market
knowledge and the development of firm’s presence on the new market. Given these
requirements contractual joint venture was chosen as the optimal entry mode. Unlike,
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wholly owned subsidiary it requires much less investment in operational launch (Hill,
2002). Additionally, this mode of operations provides a fast access to the facilities and
customer of contractual partner. The other advantage of this mode of market entry is
that it limits the possibility of technology or knowledge transfer.
Marketing mix
Product
Product advantage is the “outcome of the new product development process
comprising the degree of unique benefits not previously available, the extent to which
customer needs are better satisfied, the product’s relative quality and innovativeness,
and the extent to which the new product solves customer problems better” (Craig &
Hart, 1992). The product advantage is a key differentiator between success and failure
in the development of new products and services alike. In order to hit the market the
company have manufactured the model X1 which is environmentally friendly mini- sport
utility vehicle with 5 speed automatic transmission and 140 HP 1,8L hybrid engine with
relatively low fuel consumption[1]. The company needs to emphasize the order-winning
qualities of the product to potential customers. The decision of entering SUV segment
was determined by the growth dynamics of this segment during 2003-2005 – 10%. The
product will be designed to meet the quality preferences of the following customer
segments: fashion oriented individuals, 25-45 years old, who look for affordable sport
type utility vehicle.
One of the essential aspects of Product mix will be the development of post-
purchase service. The company will seek to develop contractual relationships with
different car service networks like independent garages, specialist fast-fit chains,
mobile servicing and tuning services and autocentres. The development of strong
relationship with Kwik-Fit, Finelist and Halfords will increase product attractiveness in
terms of availability and accessibility of service facilities.
Price
The Mintel (2006) research indicates the relative importance of price issue,
especially for customers who seek to own a second car. The chosen pricing strategy
will seek to attract potential customers buy affordable price – £10 000. This price is
2,995 lower then the price of one of the best-selling cars – Daihatsu’s Terios. The
aspect of pricing is related to the cost of service and car accessories. The major focus
will be to minimize the servicing costs by concluding conditional agreements with
service partners and providing them with low-cost quality accessories and spare parts.
Place
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Distribution is crucial in the eventual acceptance and sales of a new product in
the market as it governs the availability of the new product to customers (Calantone &
Montoya-Weiss, 1993). It goes without saying that the distribution channels chosen
must reflect the target market’s buying behavior and allow for maximum availability to
the target market. The distribution channels chosen may reinforce or dilute the
intended message of the product’s positioning in the marketplace. To maximize the
product availability Tata Motors will select the contractual partner with strong
dealership network. Additionally, e-distribution strategy will be implemented to utilize
the capacity of this distribution channel.
Promotion
Promotion decisions encompass the range of communication and motivation
instruments needed to raise awareness and precipitate purchase of the new product
(Lilly & Walters (1997).
The Mintel (2006) study gives following options of possible advertising
channels:
- TV;
- Print advertising;
- Internet Advertising
Mintel (2006) asserts that the ATL (above the line) spending account for the
major share of all expenditures on promotional activities, whereas the share of TV
advertising might exceed 50% of total cost. KPMG (2004) notes that promotional
budget usually comprises 1%-2% of the expected sales. Provided that the initial target
for Tata Motors is to sell 25 000 units in the first year of operations, the marketing
budget will be £3 750 000[2]. Additionally, the similar contribution will be expected from
the contractual partner of Tata Motors. 50% of marketing budget will be allocated to TV
advertisings, 25% – promotional activities in Car and Life style Magazines. 25% – will
allocated for point of sales promotions, events and co-marketing activities. To increase
the level of coverage the company will look for partnerships that can strengthen its
promotional appeal.
Conclusion
The paper suggested that Tata Motors should enter the UK market. This
country was chosen due to the presence of the number of favorable business and
environmental factors such as economic stability, relatively medium entry barriers,
positive growth of certain car market segments and the future growth potential within
EU whereas the UK might be used as expansion base. The analysis of business
factors indicated the importance of choosing fast mode of entry and the development of
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contractual relationships with UK operating market agents. To address this issue the
paper suggested that the company should use contractual joint venture as the mode of
UK market entry. This strategic option will provide Tata Motors with fast market
penetration, access to market knowledge and reduced financial strain. At the same
time, possible negative aspects of this choice should be counterbalanced. The analysis
of internal factors revealed that the company’s performance is strongly dependent on
the success of operations in Indian market, which might be undermined with the further
increase of competitive pressure. To strengthen its position against aggressive tactics
of competitors Tata Motors is suggested to focus on building customer relationships
and employ marketing tools designed to increase the level of customer loyalty.
On the basis of the analysis of current market dynamics Tata Motors is advised
to enter the market with SUV model, designed for sport type oriented individuals, who
look for a relatively cheap, environmentally friendly, high quality car. The price will be
one of the attractive factors, especially for price-sensitive individuals. The company will
launch advertising campaign designed to create awareness about car, communicate its
advantages and persuade customers to buy it. As for the Place Mix, the company will
seek to cooperate with various car dealers and will develop e-commerce facilities to
maximize the product availability.
Reference: http://www.jimthetrucker.com/tata-motors-entry-into-uk-market/
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4.2 References
1. Success and Sustainability UK Automotive
http://pdfcast.org/pdf/automotive-industry-analysis
2. Global Automobile Industry: Changing with Times
http://www.outsource2india.com/kpo/site/includes/
Global_Automobile_Industry11.pdf
3. Customers Luxury Behaviour
http://www.economicswebinstitute.org/essays/carthai.pdf
4. http://www.autoindustry.co.uk/
5. http://www.rba.co.uk/sources/automotive.shtml
6. http://www.berr.gov.uk/policies/business-sectors/automotive
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