Social factors
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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
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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 fashionability and luxury preferences are so strong that it removes the 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 factors
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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.
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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.
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:
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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%.
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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
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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;
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The increase of global presence in SUV segment;
Threats
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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.
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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.
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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, 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.
Table 1 – Advantages and disadvantages of Contractual Joint Venture mode
At the same time, this mode of expansion limits the capacity of Tata Motors to control the areas of operation which are covered by the partner. Besides, various conflicts might arise due to different strategic vision, different organizational cultures or perceived disparity of profit share.
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. 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
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. 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 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.
References
Calantone, R.G. and Montoya-Weiss, M.M. (1993), “Product launch and follow on”, in Souder, W.E., Sherman, J.D. (1993) Managing New Technology Development, pp. 217-48.
Craig, A. & Hart, S. (1992), “Where to now in new product development research?”, European Journal of Marketing, vol. 26, iss. 11, pp. 1-49.
Currimbhoy, Z. (2004), “The Outlook for E-Business in the Automotive Industry”, Reuters Business Insight – Strategic management reports
Datamonitor (2006a) “Tata Motors: company profile”, Datamonitor, 17.07
Datamonitor (2006b), “Global Automotive industry”, Datamonitor, 01.10
Hill, C. (2002), International business : competing in the global marketplace , 4th edn.
KPMG (2004) “KPMG’s Automotive Industry Survey”, Momentum in the Automotive Industry
Lilly, B. & Walters, R. (1997) “Towards a model of new product preannouncement timing”, Journal of Product Innovation Management, vol. 14, pp. 4-20
Mintel (2006) “Cars - UK ”, Mintel Group, October.
Nieuwenhuis, P. & Wells, P. E. (2003), The Automotive Industry and the Environment : A Technical, Business and Social Future, Cambridge: Woodhead Publishing
Tata Motors (2006), “Annual report”, Tata Motors, available from
Veloso, F. & Kumar, R. (2002), “The Automotive Supply Chain: Global Trends and Asian Perspectives ”, Asian Development Bank, ERD Working Paper No. 3
Windecker, R. (2005), “Upsize and Upscale Lead the Way”, Automotive Industries, June, Vol. 184, Issue 6, p. 18
Wit, B. and Meyer, R. (1998), Strategy: process, content, context: an international perspective, 2nd edn., London : International Thomson Business
These specifications were elaborated on the basis of characteristics of top 10 SUVs
Given that the dealer’s price will be £5 000
