Tata Motor’s -Company Background
Tata Motors was established in 1945 and is formerly known as Tata Engineering and Locomotive Company. It is India's largest automobile company, and a fortune 500 company. Tata Motors acquired Jaguar and Land Rover, a premium car brand in UK, in 2013. The company always worked in line the Tata Values to contribute to Indian society.
Tata Nano - Origin
Ratan Tata’s thought about a people’s car was a social concern. He wanted to give a car to middle class of the society. Accordingly Ratan Tata, former Chairman, Tata Motor’s, shared his vision of making Rs. 1 lakh car at the Geneva Motor Show, in 2003. A team was then constituted to build a car with a target ...view middle of the document...
There will be three types of Tata Nano car available i.e. Tata Nano, Tata Nano CX and Tata Nano LX. The selling price of the three models will be 2,185 Euro (Rs. 153,000), 2,585 Euro (Rs. 181,000) and 2,985 Euro (Rs. 209,000) per unit, respectively. Our financial projection for Year 1 is a net loss after taxes of 637,000 Euro. It is estimated that gross profit for the second year would yield 880,000 Euro and the third year 1,097,000 Euro. Estimated monthly instalment payment is 10,000 Euro for five years period. With this price, the target market is very wide which includes those with income 30 Euro (RS. 2,000) per month, students, female, workers and scooters’ riders. The 3 million Euro we are seeking will be used to begin production, marketing, and for short term capital and overhead needs.
Through this research paper, we are trying to study the economics behind Tata Nano market.
This research is focused on the following objectives:
i. To understand the economics point of view of Tata Nano.
ii. To understand the demand and supply functions
iii. To understand demand and supply shifters
iv. To study monopoly and oligopoly impacts on the market
v. To understand the population factor of demand function
vi. To analyse whether Nano should be continued using game theory.
The demand function is dependent on many variables. Most prominent ones are as below.
1. Own price elasticity(X)
2. Price of substitutes(Y)
3. Income level (M)
4. Population factors (J)
We will study briefly the impact of each of these on demand on Nano through our research.
Own price elasticity
The change in price of Nano will impact the demand of Nano in the market. This relation is given by own price elasticity. Since the product is placed at Rs. 1 lakh and had very high value proposition, the demand is highly elastic. The decrease in demand is high compared to increase in price.
Price of substitutes
The price of Tata Nano is so low that the substitutes are actually resale cars. Though the impact of resale cars on demand of Nano, it was negative.
Income level of the market also impacts the market demand. Nano was targeted at the middle income group of Indian economy. The product was targeted to increase the market share of cars segment by 65% as it includes lower levels of the pyramid.
The perception of the population and their willingness to buy the product contribute to the demand function. In Nano’s case, the product was perceived to be a very great value proposition effort made by Tata’s (pre-launch). There were many pre-bookings as well.
The supply function depended on lead time and installation time of required fixtures. Supply was majorly curbed by the price limit of Rs. 1 lakh. Hence, Nano could never achieve profit maximization.
In short run, the various ways that a firm can transform inputs into the maximum amount of output are summarized in the...