A PROJECT REPORT

OF

SEMINAR ON CONTEMPORARY ISSUES

TOPIC-“PENETRATION AND SKIMMING PRICING STRATEGIES”

FACULTY NAME :-MS.DARSHPREET KAUR.

STUDENT NAME:-SUMIT SINGHAL

RT1902A18

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ACKNOWLEDGEMENT

The successful completion of any task would be incomplete without mentioning the people who

have made it possible. So it`s with the gratitude that I acknowledge the help, which crowned my

efforts with success.

Life is a process of accumulating and discharging debts, not all of those can be measured. We

cannot hope to discharge them with simple words of thanks but we can certainly acknowledge

them.

I owe my gratitude to MISS DARSHPREET KAUR(LECTURER LIM) for her constant

guidance and support.

I would also like to thank the various department officials and staff who not only provided me

with required opportunity but also extended their valuable time and I have no words to express

my gratefulness to them.

Last but not the least I am very much indebted to my family and friends for their warm

encouragement and moral support in conducting this project work.

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EXECUTIVE SUMMARY

Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing

mix. Pricing is the process of determining what a company will receive in exchange for its

products. Pricing factors are manufacturing cost, market place, competition, market condition,

and quality of product. Pricing is also a key variable in microeconomic price allocation theory

So, in this report firstly I explained the price and after that I focused on the two Pricing strategies

.i.e. Penetration and Skimming Pricing- The idea of penetration pricing is different from another

technique known as price skimming. With the skimming approach, a product is introduced at a

higher price rather than a lower one. I also mentioned the advantages and disadvantages of both

type of Pricing strategy. The favourable conditions for each Pricing Strategy is also mentioned

here . With the help of examples I try to make understanding of both and also highlighted the

big brands are using this Pricing Strategy.I also covered a company profile of Tata motor with its

SWOT and PEST Analysis. The hierarchical order of TATA motors with its core competencies

is also covered in this Report.

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TABLE OF CONTENTS

ACKNOWLEDGEMENT…………………………………………… 2

EXECUTIVE SUMMARY ………………………………………….. 3

PRICING INTRODUCTION ……………………………………….... 5

PRICING STRATEGY ………………………………………………… 6

MARKETING STRATEGY …………………………………………… 7

ENVIROMENTAL FACTORS ……………………………………….. 8

PRICING OBJECTIVES ……………………………………………… 8

SKIMMING PRICING …………………………………………………. 9

REASONS FOR SKIMMING …………………………………………… 10

ADVANTAGES OF SKIMMING PRICING …………………………… 10

DISADVANTAGES OF SKIMMING PRICING ……………………….. 11

EXAMPLES OF SKIMMING PRICING ………………………………… 14

PENETRATION PRICING ………………………………………………. 14

ADVANTAGES OF PENETRATION PRICING …………………………. 19

DISADVANTAGES OF PENETRATION PRICING ……………………… 20

LIMITATIONS ………………………………………………………………. 20

EXAMPLES ……………………………………………………………………. 21

TATA MOTOR INTRODUCTION ………………………………………….. 23

CEO TATA MOTORS …………………………………………………………. 23

COMPANY OVERVIEW ……………………………………………………….. 24

CORE COMPETENCIES ………………………………………………………... 26

PEST ………………………………………………………………………………… 30-33

SWOT ………………………………………………………………………………… 34-37

REFERENCES ……………………………………………………………………… 38

APENDIX- A ………………………………………………………………………….. 39

APENDIX-B ………………………………………………………………… 40

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PRICING INTRODUCTION

Pricing is the process of determining what a company will receive in exchange for its products.

Pricing factors are manufacturing cost, market place, competition, market condition, and quality

of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a

fundamental aspect of financial modeling and is one of the four Ps of the marketing mix. The

other three aspects are product, promotion, and place. Price is the only revenue generating

element amongst the four Ps, the rest being cost centers.

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based

on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor

quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or

lines, and many others. Automated systems require more setup and maintenance but may prevent

pricing errors. The needs of the consumer can be converted into demand only if the consumer

has the willingness and capacity to buy the product. Thus pricing is very important in marketing.

What a price should do

A well chosen price should do three things:

achieve the financial goals of the company (e.g., profitability)

fit the realities of the marketplace (Will customers buy at that price?)

support a product's positioning and be consistent with the other variables in the marketing

mix

price is influenced by the type of distribution channel used, the type of promotions used,

and the quality of the product

price will usually need to be relatively high if manufacturing is expensive,

distribution is exclusive, and the product is supported by

extensive advertising and promotional campaigns

a low price can be a viable substitute for product quality, effective promotions, or an

energetic selling effort by distributors

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From the marketer's point of view, an efficient price is a price that is very close to the maximum

that customers are prepared to pay. In economic terms, it is a price that shifts most of the

consumer surplus to the producer. A good pricing strategy would be the one which could balance

between the price floor (the price below which the organization ends up in losses) and the price

ceiling (the price beyond which the organization experiences a no demand situation).

Pricing Strategy:-

One of the four major elements of the marketing mix is price. Pricing is an important strategic

issue because it is related to product positioning. Furthermore, pricing affects other marketing

mix elements such as product features, channel decisions, and promotion.

While there is no single recipe to determine pricing, the following is a general sequence of steps

that might be followed for developing the pricing of a new product:

1. Develop marketing strategy - perform marketing analysis, segmentation, targeting, and

positioning.

2. Make marketing mix decisions - define the product, distribution, and promotional

tactics.

3. Estimate the demand curve - understand how quantity demanded varies with price.

4. Calculate cost - include fixed and variable costs associated with the product.

5. Understand environmental factors - evaluate likely competitor actions, understand

legal constraints, etc.

6. Set pricing objectives - for example, profit maximization, revenue maximization, or

price stabilization (status quo).

7. Determine pricing - using information collected in the above steps, select a pricing

method, develop the pricing structure, and define discounts.

These steps are interrelated and are not necessarily performed in the above order. Nonetheless,

the above list serves to present a starting framework.

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Marketing Strategy and the Marketing Mix :-

Before the product is developed, the marketing strategy is formulated, including target market

selection and product positioning. There usually is a tradeoff between product quality and price,

so price is an important variable in positioning.

Because of inherent tradeoffs between marketing mix elements, pricing will depend on other

product, distribution, and promotion decisions.

Estimate the Demand Curve

Because there is a relationship between price and quantity demanded, it is important to

understand the impact of pricing on sales by estimating the demand curve for the product.

For existing products, experiments can be performed at prices above and below the current price

in order to determine the price elasticity of demand. Inelastic demand indicates that price

increases might be feasible.

Calculate Costs

If the firm has decided to launch the product, there likely is at least a basic understanding of the

costs involved, otherwise, there might be no profit to be made. The unit cost of the product sets

the lower limit of what the firm might charge, and determines the profit margin at higher prices.

The total unit cost of a producing a product is composed of the variable cost of producing each

additional unit and fixed costs that are incurred regardless of the quantity produced. The pricing

policy should consider both types of costs.

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Environmental Factors

Pricing must take into account the competitive and legal environment in which the company

operates. From a competitive standpoint, the firm must consider the implications of its pricing on

the pricing decisions of competitors. For example, setting the price too low may risk a price war

that may not be in the best interest of either side. Setting the price too high may attract a large

number of competitors who want to share in the profits.

From a legal standpoint, a firm is not free to price its products at any level it chooses. For

example, there may be price controls that prohibit pricing a product too high. Pricing it too low

may be considered predatory pricing or "dumping" in the case of international trade. Offering a

different price for different consumers may violate laws against price discrimination. Finally,

collusion with competitors to fix prices at an agreed level is illegal in many countries.

Pricing Objectives

The firm's pricing objectives must be identified in order to determine the optimal pricing.

Common objectives include the following:

Current profit maximization - seeks to maximize current profit, taking into account

revenue and costs. Current profit maximization may not be the best objective if it results

in lower long-term profits.

Current revenue maximization - seeks to maximize current revenue with no regard to

profit margins. The underlying objective often is to maximize long-term profits by

increasing market share and lowering costs.

Maximize quantity - seeks to maximize the number of units sold or the number of

customers served in order to decrease long-term costs as predicted by the experience

curve.

Maximize profit margin - attempts to maximize the unit profit margin, recognizing that

quantities will be low.

Quality leadership - use price to signal high quality in an attempt to position the product

as the quality leader.

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Partial cost recovery - an organization that has other revenue sources may seek only

partial cost recovery.

Survival - in situations such as market decline and overcapacity, the goal may be to

select a price that will cover costs and permit the firm to remain in the market. In this

case, survival may take a priority over profits, so this objective is considered temporary.

Status quo - the firm may seek price stabilization in order to avoid price wars and

maintain a moderate but stable level of profit.

For new products, the pricing objective often is either to maximize profit margin or to maximize

quantity (market share). To meet these objectives, skim pricing and penetration pricing strategies

often are employed.

SKIMMING PRICING INTRODUCTION :-

Price skimming is a pricing strategy in which a marketer sets a relatively high price for

a product or service at first, then lowers the price over time. It is a temporal version of price

discrimination/yield management. It allows the firm to recover its sunk costs quickly before

competition steps in and lowers the market price.

OR

Market skimming pricing can be defined as charging relatively high price for a short time where

a new,innovative or much improved product is launched into the market.

CONDITIONS THAT FAVOR SKIMMING INCLUDE: 

1) Pent up demand (or high current demand if it's for a completely new product

like when MP3 was introduced) 

2) Unit production costs don't get too cumbersome at low volume 

3) High profitability doesn't attract competition too quickly 

4) High price gives a premium brand image 

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REASONS FOR PRICE SKIMMING:-

Price skimming occurs in mostly technological markets as firms set a high price during the first

stage of the product life cycle. The top segment of the market which are willing to pay the

highest price are skimmed of first. When the product enters maturity the price is lowered.

Price skimming is sometimes referred to as riding down the demand curve. The objective of a

price skimming strategy is to capture the consumer surplus. If this is done successfully, then

theoretically no customer will pay less for the product than the maximum they are willing to pay.

In practice, it is almost impossible for a firm to capture all of this surplus.

Market-skimming pricing is the practice of raising a price for a product and marketing it to the

market willing to pay the higher price. Market-skimming pricing brings in less sales but

ultimately more revenue per sale. Market-skimming requires market research and strategy for a

higher income demographic.

ADVANTAGES OF PRICE SKIMMING

Where a highly innovative product is launched, research and development costs are likely

to be high, as are the costs of introducing the product to the market via promotion,

advertising etc. In such cases, the practice of price-skimming allows for some return on

the set-up costs

By charging high prices initially, a company can build a high-quality image for its

product. Charging initial high prices allows the firm the luxury of reducing them when

the threat of competition arrives. By contrast, a lower initial price would be difficult to

increase without risking the loss of sales volume

Skimming can be an effective strategy in segmenting the market. A firm can divide the

market into a number of segments and reduce the price at different stages in each, thus

acquiring maximum profit from each segment

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Where a product is distributed via dealers, the practice of price-skimming is very popular,

since high prices for the supplier are translated into high mark-ups for the dealer

For ‘conspicuous’ or ‘prestige goods’, the practice of price skimming can be particularly

successful, since the buyer tends to be more ‘prestige’ conscious than price conscious.

Similarly, where the quality differences between competing brands is perceived to be

large, or for offerings where such differences are not easily judged, the skimming

strategy can work well. An example of the latter would be for the manufacturers of

‘designer-label’ clothing.

Price skimming helps in recovering the sunk costs. Sunk costs are costs incurred in past

which cannot be recovered. When a new and innovative product is launched its research

and development costs are usually high. Similarly a lot of promotion via advertising etc.

is required for its introduction to the market. The initial hike in price helps in recovering

some of these expenses.

Price skimming helps in segmenting the market. The price can be lowered to suit each

segment and thereby the demand of each segment is satisfied and the manufacturer makes

maximum profit from each of them.

The high price of the product brings huge benefits for the dealers as well. Since the prices

are high initially the manufacturer has the liberty of lowering it when competitors knock

at the door.

DISADVANTAGES OF PRICE SKIMMING

This policy is workable only when the product has an inelastic demand curve. For

instance, price changes have no effect on the demand for a life saving drug. The price

may $100 or $50 people will buy it. If in the long run demand curve turns elastic then

market equilibrium will be attained by quantity changes instead of price changes.

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It is difficult to maintain the stock for skimmed products. It isn’t an easy proposition

for the distribution chain. Retailers may ask for higher profit margins to continue

distribution of products.

Skimming attracts competitors. The high margins compel them to enter the market as

soon as possible.

The rate of diffusion is slow for skimmed products. The competitors take advantage of

this situation. They either turn copy cats and come out with similar cheaper products or

go one step further and introduce a similar product with enhanced features.

Lowering of price should be done at an appropriate time. If lowered too soon the early

customers feel cheated. They feel waiting for some more time before buying the product

would have helped them strike a profitable deal. As a result the company and its brand

name suffer.

Inefficiency may creep into the firm. Due to high margins less effort is made to keep a

check on the costs.

THERE ARE SEVERAL POTENTIAL PROBLEMS WITH THIS

STRATEGY.:-

It is effective only when the firm is facing an inelastic demand curve. If the

long run demand schedule is elastic (as in the diagram to the right), market

equilibrium will be achieved by quantity changes rather than price

changes. Penetration pricing is a more suitable strategy in this case. Price

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changes by any one firm will be matched by other firms resulting in a rapid

growth in industry volume. Dominant market share will typically be

obtained by a low cost producer that pursues a penetration strategy.

A price skimmer must be careful with the law. Price discrimination is illegal

in many jurisdictions, but yield management is not. Price skimming can be

considered either a form of price discrimination or a form of yield

management. Price discrimination uses market characteristics (such as price

elasticity) to adjust prices, whereas yield management uses product

characteristics. Marketers see this legal distinction as quaint since in almost

all cases market characteristics correlate highly with product characteristics.

If using a skimming strategy, a marketer must speak and think in terms of

product characteristics in order to stay on the right side of the law.

The inventory turn rate can be very low for skimmed products. This could

cause problems for the manufacturer's distribution chain. It may be

necessary to give retailers higher margins to convince them to handle

enthusiastically the product.

Skimming encourages the entry of competitors. When other firms see the

high margins available in the industry, they will quickly enter.

Skimming results in a slow rate of stuff diffusion and adaptation. This

results in a high level of untapped demand. This gives competitors time to

either imitate the product or leap frog it with a new innovation. If

competitors do this, the window of opportunity will have been lost.

The manufacturer could develop negative publicity if they lower the price

too fast and without significant product changes. Some early purchasers will

feel they have been ripped off. They will feel it would have been better to

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wait and purchase the product at a much lower price. This negative

sentiment will be transferred to the brand and the company as a whole.

High margins may make the firm inefficient. There will be less incentive to

keep costs under control. Inefficient practices will become established

making it difficult to compete on value or price.

EXAMPLES OF SKIMMING PRICING :-

B2C skimming examples are found in new technology electronics, such as

HDTV, iPhone, etc. 

B2B skimming examples include premium services (such as inventory

management) to key customers that are willing to pay the premium for such

services.

"When Sony introduced the world's first high definition television to the Japanese market in 1990, the high-tech sets cost $43,000. These televisions were purchased only by customer who could afford to pay a high price for the new technology. Sony rapidly reduced the price over the next several years to attract new buyers. By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000. In 2001, a Japanese consumer could buy a 40-inch HDTV for about $2000, a price that many more customers could afford. In this way, Sony skimmed the maximum amount of revenue from the various segments of the market."

PENETRATION PRICING

Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.

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Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). A penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. 

The implications of an imperfect market's downward sloping demand curve are evident in a typical new product pricing decision: should a product be launched with an aggressively low price from the start (penetration strategy), or should the product be introduced at a high initial price with subsequent price reductions as the market matures (a skimming strategy).

 

Again, if the product were being launched into a perfectly competitive market, there would be no pricing decision to make per se.  The prevailing market price would be the price.  So, the company's decision is whether or not to launch the product.

 

But, a substantially new product is, in effect, a mini or local monopoly.  That is, for at least some segments of the market for which the product is targeted, the new product is initially unique with no substitutes.  So, the innovating company has pricing leeway.  The more the product is unique (i.e. differentiated) and strategically targeted, the greater the monopoly effect and the broader the pricing leeway.

 

From a strategic perspective, a market share focused penetration strategy is most appropriate when it is important to exploit a potentially transient first mover advantage, or to quickly establish a broad installed base in anticipation of:

 

(a) Cost improvements from scale, scope or experience (learning curve)

 

(b) Substantial complementary product sales (e.g. razors and blades, toner cartridges for printers and copiers)

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(c) Subsequent upgrade cycles (software)

 

(d) Network effects that provide increasing  benefits as more customers buy the product (e.g. fax machines)

  

The conceptual essence of a penetration strategy is illustrated below.

 

                        To quickly penetrate the market, the company launches the product at relatively low price (P1),

expecting to sell quantity Q1, and generate revenues equal to P1 times Q1 (the area of the shaded

box).  The penetration strategy capitalizes on the downward sloping demand curve since the

company can pick the price and, within some reasonable bounds, optimize the resulting short-run

sales quantity.

 

The penetration price selected (P1 in this case) will typically be driven by two factors: price

elasticity and marginal cost.

 

Price elasticity is a measure of the market's responsiveness to a price change.  If the quantity

demanded increases (in percentage terms) more than a price decreases (also in percentage terms),

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then revenue goes up and demand is said to be price elastic at that point.   Conversely, if quantity

increases less than price decreases, then revenue goes down and demand is inelastic.

 

In most instances, companies will only consider a lower price if revenue is projected to increase,

i.e. demand is elastic with respect to price.  But, since the ultimate objective is profitability, a

revenue increase is necessary but not sufficient: profits may decrease even if revenues increase

since a company typically incurs higher total product cost (fixed plus variable) when volume

increases, unless scale economies or experience effects are sufficiently large that variable costs

per unit decline.

 

More specifically, the penetration price is usually set higher than the firm's marginal cost to

bolster profitability.  In some special cases, though, the penetration price may actually be lower

than marginal cost.  For example, a firm may be willing to incur initial losses  (i.e. price below

cost) if substantial future-related profitable sales are expected from complementary sales,

upgrades, or price increases.  

 

For example, HP tries to sell as many printers as it can, even at slim margins, and then make

money from ink and other consumables.  According to Fortune,  "Every second of every day, HP

makes one new printer and ten new ink-jet cartridges. The company controls 60% of the ink-jet-

printer market and 55% of the laser business. Last year, HP sold about $9 billion of ink and

supplies, or nearly as much as it took in from printers. But while printers carry gross profit

margins of 15% to 20%, the margins on ink are 50%.  Indeed, ink accounts for most of the

company's profits.  Call it HP's black gold."

 

The polar opposite to penetration pricing is called skim pricing.

 

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Market Penetration Pricing - A Quick Market Entry Pricing Strategy

WHEN IS LOW ENTRY PRICE STRATEGY APPROPRIATE? :-

Low entry pricing should be adopted only in a situation where the business organization is financially very strong and can survive on low profit margins for a prolonged period of time. Secondly, the basic demand for the product should be high so that economies of scale may be achieved in order to operate on a low price

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for a long time. Therefore, this strategy is usually preferred for products that command a mass market, and the mass consumers are highly price sensitive.

PRICE PENETRATION IS MOST APPROPRIATE WHEN:

Product demand if highly price elastic.

Substantial economies of scale are available.

The product is suitable for a mass market (ie.: sufficient demand).

The product will face stiff competition soon after introduction.

There is inadequate demand in the low elasticity market segment for price skimming.

In industries where standardization is important. The product that achieves high market

penetration often becomes the industry standard (eg.: Microsoft Windows) and other

products, even very much superior products, become marginalized.

THE ADVANTAGES OF PENETRATION PRICING ARE:

It can result in fast diffusion and adoption. This can achieve high market penetration rates

quickly. This can take the competition by surprise, not giving them time to react.

It can create goodwill among the all-important early adopter segment. This can create

valuableword of mouth .

It creates cost control and cost reduction pressures from the start, leading to greater

efficiency.

It discourages the entry of competitors. Low prices act as a barrier to entry (see: porter 5

forces analysis).

It can create high stock turnover throughout the distribution channel. This can create

critically important enthusiasm and support in the channel.

It can be based on marginal cost pricing, which is economically efficient.

The core benefit of this strategy is that it manages to cut down the struggle time for a new brand, and gains early adopters for it fairly quickly. Thereafter, the early adopters can lead to more customers through word of mouth publicity. If the market is particularly large and diverse, this strategy makes it easy to achieve quick diffusion of the product across various market segments.

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THE DISADVANTAGE OF PENETRATION PRICING :-

The main disadvantage with penetration pricing is that it establishes long term price

expectations for the product, and image preconceptions for the brand and company.

This makes it difficult to eventually raise prices. Some commentators claim that

penetration pricing attracts only the switchers (bargain hunters), and that they will

switch away as soon as the price rises. There is much controversy over whether it is

better to raise prices gradually over a period of years (so that consumers don’t

notice), or employ a single large price increase. A common solution to this problem

is to set the initial price at the long term market price, but include an initial discount

coupon (see sales promotion). In this way, the perceived price points remain high

even though the actual selling price is low.

The most obvious potential disadvantage of implementing a penetration pricing

strategy is the likelihood of competing suppliers following suit by reducing their

prices also, thus nullifying any advantage of the reduced price (if prices are

sufficiently differentiated the impact of this disadvantage may be diminished). 

A second potential disadvantage is the impact of the reduced price on the image of

the offering, particularly where buyers associate price with quality. 

LIMITATIONS OF PENETRATION PRICING

One of the common challenges posed by this strategy is that once the initial market euphoria settles down, it may become difficult for the company to sustain such low pricing for the long term. The hurdle usually is that the customers tend to associate the brand’s image with low price, and are unable to accept it if the price goes high. In many cases, the customers switch back their loyalties to older brands that did not compromise on their image as a quality and not price oriented player.

This limitation should be carefully evaluated by a marketer before choosing this strategy to promote a new brand. Some marketing experts are of the opinion that a mid-way strategy should be adopted to overcome this limitation. The brand should maintain an initial price in line with the competitors’ prices, but offer an introductory discount coupon or scheme to encourage customers to try the new brand and form an opinion about it after usage.

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AGGRESSIVE PRICING TO INCREASE MARKET SHARE:-

Penetration pricing strategy is one of the most effective marketing strategies available to a business organization. However, this strategy can be used only in specific situations when the business is in a strong position to sustain itself even with a penetration price. This strategy involves setting a low entry price for a new product or brand in order to gain a breakthrough in a highly competitive market. The strategy can also be used when introducing a completely novel product in the market or when tapping a new market segment for an existing product.

A company employs penetration pricing with the expectation that eventually the price will be raised once the initial marketing objectives are fulfilled. Its aim is to attract the customers to try the company’s product. By keeping the price intentionally lower than established competitors, the business aims to compromise existing brand loyalties of the customers. The ultimate goal of this strategy is not to maximize profits, but to allow a new product or brand to gain a foothold in the marketplace.

INDUSTRY EXAMPLES OF PENETRATION PRICING

Discount retailers such as Wal-Mart and many other multi-national corporations such as Procter and Gamble and Unilever employ this strategy to penetrate into new and unknown international markets. An innovative food brand may use this strategy at a local level when there is an expectation that customers may get hooked on it due to its unique taste and quality. Car manufacturers employ this strategy sometimes in untapped consumer segments of Asian and African markets in order to create a new desire in the segment to own a premium product.

An interesting variant of this strategy is the “hook and bait” strategy that is applicable in specific durable product segments. For instance, Gillette is known to penetrate new markets by offering its razors at extremely low prices, and once the customer is hooked on to its quality, it makes money by selling blades at high prices. Similarly, computer printer manufacturers such as Hewlett-Packard sell their printers at very low prices to enter the market, and then make money by selling ink cartridges at high prices.

Micro-Max mobile manufacturing company also using this Strategy for establishment in the Indian Market.

DTH services of India were companies are reducing the prices to gain more number of customers.

McAfee had an interesting penetration pricing strategy. It actually placed its software on BSS. Many corporate users downloaded the software and started using that. Once they discovered an organization with many users using its software, it contacted the organization and asked for a small fee per PC. Most organizations preferred to pay the small fee instead of either being unprotected or bearing the cost of removing the software from all the PCs. 

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TATA MOTORS use Penetration Pricing strategy for the launch of its small car “NANO”.

DIFFERENCE BETWEEN SKIMMING PRICING AND PENETRATION PRICING :-

Skimming pricing is for new or innovative product, the price at the begining is high and

customers are not price sensitive.

Penetration pricing set a low price at the begining to gain a mass market, and the price

will rise later. The customers are price sensitive.

Some manufacturers of new products, however, take a decidedly different tack when

introducing their goods to the marketplace. Some choose to engage in skimming pricing,

a strategy wherein the initial price for the product is set quite high for a relatively short

time after introduction. Even though sales will likely be modest with skimming, the profit

margin is great. This pricing approach is most often used for high-prestige or otherwise

unique products with significant cache. Once the product's appeal broadens, the price is

then reduced to appeal to a greater range of consumers. "The decision between skimming

and penetration pricing," said Hilton, "depends on the type of product and involves trade-

offs of price versus volume. Skimming pricing results in much slower acceptance of a

new product, but higher unit profits. Penetration pricing results in greater initial sales

volume, but lower unit profits."

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TATA MOTORS

INTRODUCTION

Established under the parent company, Tata Group, in 1945, Tata Motors Limited has

become India’s largest automobile company. It was the first Indian automobile company to list

on the New York Stock Exchange. Tata Motors began manufacturing commercial vehicles in

1954 with a 15-year collaboration agreement with Daimler Benz of Germany. This partnership

has led Tata Motors to not only become India’s largest automobile company but also India’s

largest commercial vehicle manufacturer; the world’s top five manufactures of medium and

heavy trucks and the world’s second largest medium and heavy bus manufacturer. Having just

entered the passenger vehicles market segment in 1991, Tata Motors now ranks second in India’s

passenger vehicle market.

Tata has enjoyed the prestige of having developed Tata Ace, India’s first indigenous light

commercial vehicle; Tata Safari, India’s first sports utility vehicle; Tata Indica, India’s first

indigenously manufactured passenger car; and the Nano, the world’s least expensive car. A full

timeline of Tata Motors Limited is supplied in Appendix A.

CEO OF TATA MOTORS

Tata Motors has appointed Mr. Carl-Peter Forster as new CEO of the group. Mr. Forster will be

in charge of overall Tata Motors operations including Jaguar and Land Rover. Mr. Forster was

the former head of GM Europe operations. On behalf of IAB, we would like to congratulate Mr.

Forster on his appointment.

A tough job lay ahead for Mr. Forster, but he could not have come at a better time. The economy

is recovering, money is back in the market, Tata Motors domestic sales in January was great

considering competition and prior months. Well it could be the January effect (new year sales

etc), but certainly a good month for Tata Motors.

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CURRENT SITUATION

COMPANY OVERVIEW

The Tata Motors group is a passenger and commercial vehicle manufacturer based in

India. The motor group was established in 1945 as part of the larger Tata Group. They have

long been known for their commercial vehicles and in the past ten years entered into the

passenger car market. Currently, Tata Motors has a line of five passenger vehicles and a large

line of commercial vehicles producing pickups, trucks, tractor trailers, tippers, and buses. Both

product lines of the Tata Motors group have seen success, but much of this has been built upon

the more deeply established commercial vehicle product line.

Tata Motors commercial line has been established for several years in many market

segments such as Europe, Africa, The Middle East, Australia, Southeast Asia, and South Asia.

Tata Motors has expanded their business and market share around the world through a series of

acquisitions. In 2004, they acquired Daewoo commercial vehicle Company in South Korea

which was South Korea’s second largest truck manufacturer. This acquisition gave Tata Motors a

significant presence in the Korean market. They have also entered into joint ventures with

companies such as Thonburi Automotive in 2006, which allowed them to manufacture and

market pickup trucks in Thailand. “We think it makes sense for Tata to expand through

acquisition (as it did in tea and steel) than spend a decade to build the business” (Lehman

Brothers). The commercial vehicle area of the business has certainly been how Tata Motors

have built their reputation, with commercial vehicles accounting for 80-85% of company profits.

They are beginning to employ a similar technique as they now expand into the passenger car

business.

Tata Motors have been making global headlines in the auto industry lately; the largest

news being their acquisition of Jaguar and Land Rover from Ford. “Tata paid 2.3 billion dollars

to Ford for the two brands that cost Ford 5.3 billion” (Carty, USA Today). This is a major step

for the company because it catapults them into the luxury car business which they are not known

for at this time. Tata, like many new businesses it acquires, is allowing this new segment of the

business to be run by previous management since they have more experience in the luxury

automotive business. “Tata will give us some space. They want us to run our business, be a

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premium British car company” (Mike O’Driscoll, managing director of Jaguar). This is yet

another large acquisition for the Tata Motors group and could create great success for the

company in the near future.

Furthermore, Tata Motors made another large announcement regarding their progress in

the passenger vehicle segment. In January they announced that they, “would release a $2,500 car

that could replace the motor scooters commonly used in developing countries to cart around

whole families” (Carty, USA Today). This is a major break through in the automotive industry

and shows how far reaching, diverse, and competitive the Tata Motors group is becoming. Soon

they will be serving customers in the high-class luxury market while still catering to their older

niches in developing countries.

CORPORATE GOVERNANCE

Since Tata Motors is a part of a large conglomerate company it needs to have a strong

corporate governance to ensure that its employees act ethically and the business continues to run

smoothly especially during the ever changing and dynamic global economy. “Tata Group’s

corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance

practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency

of the company people have a right to know what the company is doing not only to ensure ethical

practices, but for the insurance of their many shareholders whom have a right to know the inner

workings of the company. A full list of top management is visible in Appendix B.

Tata has created some models for employees to guide themselves through everyday

business practices to ensure that the corporate governance is continuously being upheld. The

Tata business excellence model is upheld by Tata quality management services. Quality

management is an in-house group dedicated to helping the various Tata companies achieve their

business objectives through specific processes. The two main processes that the quality

management services employees focus on are business excellence and business ethics. These

two objectives have helped build Tata into the strong, dynamic company it is today. These

models are entrenched in the company’s ethnical standards and Tata feels strongly about

enforcing both throughout the company. “Tata quality management services plays the role of

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supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of

business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com).

To further prove their commitment to quality and ethical practices Tata has introduced

annual quality awards for those companies conducting business with the utmost quality. These

awards are called the JRD quality value awards named after the late chairmen JRD Tata. These

awards are presented annually on July 29th, the birthday of JRD Tata. Tata has committed to

ensuring quality and ethical standards not only within Tata Motors, but throughout their many

other branches and sectors of the Tata Group. They have done so by benchmarking quality

standards through the Tata business excellence model as well as providing incentives for

companies to strive to improve the quality of their service, by awarding JRD quality

management awards.

FINANCIAL POSITION

Tata Motors have increased its earnings over the years through their various acquisitions

and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was

1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings after taxes also

increased significantly between 2006 and 2007 increasing from 336.6 million to 405.5 million in

2007. After a large drop in revenues from 2004 to 2005 when the company first went public on

the NYSE (stock prices from May 1-22, 2008 ,it has been increasing revenues greatly annually,

from 4,422.0 million in 2005 to 7,354.0 in 2007.

CORE COMPETENCIES

Tata Motors is able to maintain, as well as increase, their market share by capitalizing on

their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the

automotive industry, which means that there must be many different activities going on in all

areas of the company. As a result of the ever evolving automotive industry Tata Motors must

always be changing and one way to stay at the forefront of the industry is to make continuous

improvements in technology through research and development. One way that Tata Motors has

done this is by producing one of the most efficient and low cost vehicles on the market.

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Acquisitions, mergers, and expansion is another core competency that Tata Motors has is

embedded in their company structure and philosophy. Another core competency that Tata

Motors holds is being located in the India. This location has allowed them to understand not

only the Indian market but also the dynamics of emerging and developing markets. This market

understanding and knowledge allows Tata Motors to manufacture their products at lower costs,

sell them to emerging markets while making profits as well as take advantage of the strong labor

base in India.

RESEARCH AND DEVELOPMENT

One factor to Tata Motors success is their constant advances in automobile technology

through research and development. There is a high emphasis on thorough research that provides

the much-needed inspiration for the birth of new ideas, which in turn breathes new life into

products. They employ approximately 1,400 scientists and development officers. Tata Motors

has several research and development centers in India. The Research Center at Jamshedpur and

the Engineering Research Center in Pune are among the finest in the country (Tata.com). They

possess forums to develop and test durability, engine performance, emission, safety, design and

style, noise, hydraulics, tracks, and instrumentation. Both have won numerous national awards in

research and development efforts since their inception in 1966.

Through these advanced research centers Tata has created sophisticated emission

measurement systems and digital prototyping laboratories. Some other technologies that are part

of Tata Motors’ arsenal are those that offer improved electronic controls for engine systems and

other “vehicle drive-train and chassis systems” (Tata.com). The company is currently focused on

equipping vehicles of the future with technologies for improving communication, navigation and

entertainment. One example of these technological improvements is highlighted in the OneCAT

(Appendix E). This concept car is a fiberglass vehicle that virtually powered by air and is

emission free. The OneCAT weighs only a 350 kg and has a piston engine that runs on

compressed air. This car can run between 200 to 300 kilometers on one Euro of compressed air.

A spokesman for Moteur Development International, a company that partnered in the

development of this car said, "The engine is efficient, cost-effective, scalable, and capable of

other applications like power generation," (Autopartswarehouse.blog.com) This car is truly a

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representation of the next step in green automobiles. The car’s engine’s emission can be used as

an air conditioner in the cabin. This car is very futuristic and is still in the development stages:

“Nonetheless, Tata and Moteur Development International are confident that

OneCAT, which can accommodate three adult passengers, is competent enough to

go against potential green car rivals and energy efficient autos such as the hybrid,

bio-fuels, and electric vehicles. The ‘air car’ is targeted for release this year with a

base price of around £2,500.” (Autopartswarehouse.blog.com)

Some of Tata Motors other technological advances can be seen in the new car the Nano

nicknamed the People’s Car (Appendix E). This car, which is just emerging into the market, is

the world’s cheapest car. Tata Motors achieved this is through using new materials such as, re-

engineered plastics and modern adhesives. It will revolutionize the auto industry in India and

soon in other emerging markets when Tata starts exporting. The Nano was able to achieve its

low price and gain the attention of the entire automotive industry through its advances in

materials and adhesives technology.

ACQUISITIONS, MERGERS & EXPANSION

Like other companies, Tata Motors is always growing and expanding and the main way

they do this is through acquisitions and mergers. Since 2004, Tata Motors has merged or

acquired all of or at least part of four different companies. In March 2004, Tata Motors acquired

100 percent of the Korean based Daewoo Commercial Vehicle Company, Korea’s second largest

truck maker, for 102 million dollars. Rather than using de-culturation or assimilating Daewoo,

Tata took an integrated approach, and continued building and marketing Daewoo’s current

models as well as introducing a few new models globally just as it had been done under Korean

management.

In February 2005, they acquired 21 Percent of Hispano Carrocera, Spain-based company,

for 12 million Euro. In April 2005, Tata Motors Limited merged with Tata Finance, and lastly in

March 2008 Tata paid Ford Motor Company 2.3 billion for Jaguar and Land Rover companies

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(Tata.com). These acquisitions and mergers allow Tata Motors to break into foreign markets and

develop a much larger share of the automotive industry.

It also helps them attain the knowledge, technology, and programs that allow them to

succeed in that particular sector of the automotive industry or in a particular region or culture.

For instance, the purchase of Jaguar and Land Rover allows Tata to enter into the luxury car

market without having to research the market, build the technology, among other important

aspects of getting into a new market segment. It further helps them enter into the very

competitive and highly desirable mature markets in Europe and in future hopes of securing

market segments in the United States. Tata Motors is currently in a growth stage as stated on

their website: “Tata Motors Ltd is in a mega expansion mode. The investments would be in

product development, capital expenditure in capacity enhancement, domestic and international

acquisitions and mergers” (Tata.com).

ORGANIZATION LOCATION

Tata Motors is located in the developing country of India. This location has been and will

continue to be vital to Tata’s success. In India, Tata can take advantage of the fact that

manufacturing labor cost is only eight to nine percent of sales, compared to 30 to 35 percent of

sales in developed countries. In addition, India is one of the world’s largest producers of

automotive components which give Tata Motors direct access to many of these components. Tata

has higher bargaining power with suppliers because it is a local, not foreign, car manufacturer.

Tata Motors is able to leverage Indian automotive market because the current increase in demand

due to the improvements in infrastructure and growth of population and disposable incomes in

India. The Society of Indian Automobile Manufacturers stated, “India, where some 1.4 million

new cars are sold each year, is also a hugely attractive market for dozens of car companies and

most of them can’t risk ignoring what appears to now be a potent competitive advantage for Tata

Motors. India’s car market is expected to touch 2.2 million units a year by 2010”

(Livemint.com). Additionally, the India government has made protectionist polices and

regulations that are extremely favorable to Tata. In December 1997, the Indian government put

in place policies that require foreign carmakers to invest at least 50 million dollars in equity to

set up manufacturing operations in India. This means that Tata Motors is able to take advantage

of the low cost of labor, land assets, and overall investment practices without having to

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implement this 50 million dollar investment. Finally, Tata Motors largest competitive advantage

is that it has prospered and grown in only developing markets for over 70 years. Tata Motors has

implemented programs that allow it to prosper while maintaining low costs and high profits.

Lastly, Tata Motors has a competitive advantage simply because they are part of the

larger Tata Group. Tata Group supplies Tata Motors with access to knowledge, resources,

technology and companies operating in many different industries worldwide allowing innovation

and easy availability to access other sources.

PEST ANALYSIS

POLITICAL

Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle

East, and Australia, it needs to pay close attention to the political climate but also laws and

regulations in all the countries it operates in while also paying attention to regional governing

bodies. Laws governing commerce, trade, growth, and investment are dependent on the local

government as well as how successful local markets and economies will be due to regional,

national and local influence.

On March 26, 2008, Tata Motors reached an agreement with Ford to purchase Jaguar and

Land Rover. In order to be capable of this acquisition, Tata Motors must have a full

comprehension of the governing bodies and laws regulating commerce in the home country, the

United Kingdom, but also in countries Jaguar and Land Rover operate in.

In accordance, Tata’s headquarters in Mumbai, India, strictly controls and regulates

operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor

laws in the multiple countries where they have manufacturing plants it has to watch political

change. This will be especially vital in the future as Tata Motors continues to expand and grow

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into new markets. “While currently about 18% of its revenues are from international business,

the company's objective is to expand its international business, both through organic and

inorganic growth routes” (Tata.com). The foundation of the company’s growth internationally is

a deep understand of economic stimulation, customer needs, and individual government

regulations and laws. Although it is the headquarters ultimate responsibility to make sure each

individual office and branch is operating and abiding by the local laws, it will become

increasingly more important for that duty to be taken care of at the regional or even local level.

ECONOMIC

Operating in numerous countries across the world, Tata Motors functions with a global

economic perspective while focusing on each individual market. Because Tata is in a rapid

growth period, expanding or forming a joint venture in over five countries world-wide since

2004, a global approach enables Tata Motors to adapt and learn from the many different regions

within the whole automotive industry. They have experience and resources from five continents

across the globe, thus when any variable changes in the market they can gather information and

resources from all over the world to address any issues. For instance, if the price of the

aluminum required to make engine blocks goes up in Kenya, Tata has the option to get the

aluminum from other suppliers in Europe or Asia who they would normally get from for

production in Ukraine or Russia.

Tata Motors also has to pay close attention to shifts in currency rates throughout the

world. Currency fluctuations can equate to higher or lower demands for Tata vehicles which in

turn affect profitability. It can also mean a rise in costs or a drop in returns. But they also have to

pay attention to not just the domestic currency, the rupee, but also to the dollar, euro, bhat, won,

and pound, to just name a few. Just because the rupee is strong against the dollar does not mean

it is strong against all the other currencies. Attention to currency is important because it

influences where capital investment will develop and prosper.

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SOCIAL

Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a

company will affect how well a company performs. This includes every stakeholder from the

CEO and President, down to the line workers who screw the door panel into place, from the

investor to the customer, the culture and attitude of all these people will ultimately determine the

future of a company and whether they will be profitable or not. For this reason, Tata Motors

tends to use an integration and rarely separation technique with foreign companies they acquire.

On the other hand, some economic issues that Tata Motors face must also be looked at

from a more localized perspective. For instance, the market in India for cars is much different

than the market for cars in Italy. For one, India has over one billion more people than Italy does,

thus the market is much larger or not as limited. Second, you must also take into affect the

demographics and the average income of each market. Italians have a higher average income per

capita than Indians and Italian citizens tend to drive larger and fancier cars. For this reason, the

Tata Nano might not do so well in the Italian market. In summation, Tata Motors views the

economy from a global perspective with operations across the entire globe; however, they must

also maintain a local market understanding and knowledge when it comes to product positioning

and placement throughout the different markets Tata conducts business in.

In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at

the time Korea’s second largest truck maker. Rather than using de-culturation or assimilating

Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s

current models as well as introducing a few new models globally just as it had been done under

Korean management.

With the new acquisition of Jaguar and Land Rover, Tata will have to be careful with

how they handle the acquisition. While Land Rover is thriving while under the helm of Ford,

Jaguar was more of the trouble child. “Jaguar cost Ford some $10 billion during its 18-year

stewardship and its sales were in headlong decline, especially in America, its most important

market. Industry analysts also struggled to see what value Tata could add that had eluded Ford,

and what synergies there could be between a maker of trucks and basic cars… and two luxury

marques.” (Economist). Separation could be a good approach for the immediate future to keep

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the name of Jaguar and Land Rover distinguishable and associated with the luxury automobile

market. Overall, Tata does a good job of integrating some aspects of their large multi-national

conglomerate into new acquisitions; however, the company must also understand that separation

from the name Tata can be valuable in some social areas.

TECHNOLOGY

Tata Motors and its parent company, the Tata Group, are ahead of the game in the

technology field. The Tata Group as a whole has over 20 publicly listed enterprises and operates

in more than 80 countries world-wide. This equates to Tata Motors having lots of experience and

resources to draw from for research and development purposes. “The foundation of the

company’s growth is a deep understanding of economic stimuli and customer needs, and the

ability to translate them into customer-desired offerings through leading edge R&D” (Tata).

Employing 1,400 scientists and engineers, Tata Motors’ Research and Development team is

ahead of the pack in India’s market and right with the rest of the field internationally. Among

Tata’s firsts are “the first indigenously developed Light Commercial Vehicle, India's first Sports

Utility Vehicle and, in 1998, the Tata Indica, India's first fully indigenous passenger car,” as well

as the increasingly famous Tata Nano, which is projected to be the world’s cheapest production

car (Tata). In the automotive industry, it is becoming increasingly crucial for manufacturers to

stay on top of the technology curve with new problems always rising such as escalating gas

prices and pollution problems. Tata recognizes this and dedicates lots of resources and time into

research and development to be even with or preferably ahead of other competitors, global

trends, and changing economies. In all, an automobile manufacturer must change, adapt, and

evolve to stay competitive in the automotive game, and this is exactly what Tata is doing with

their rapid growth, and extensive research and development.

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SWOT ANALYSIS

STRENGTHS

Tata Motors excels when it comes to innovation through intensive research and

development. Their ability to make the least expensive car on the market, the Nano which will

retail for $2,500, is far beyond what any other car dealership has created. This innovation gives

Tata Motors their main competitive advantage. Tata Motors makes everything from tractor-

trailers to the world’s least expensive car. This product diversity grants them a competitive

advantage over their competitors because they can satisfy more markets and customer needs.

Another strength that Tata Motors possesses is high corporate responsibility. They donate a

portion of their profits from stock increases towards a specific charity. This highlights Tata

Motors overall desire for community improvement while also emphasizing Tata Motors’ high

morals and values which is something money can not buy.

Tata Motors is also a very eco-friendly company. One of their goals is to produce an

emission friendly car, and in 2000 Tata Motors launched the first compressed natural air bus.

This air bus requires the owner to plug the car into a standard electric plug for four hours to fill

the air tanks. This brought the concept of an “air-car” to reality and the name for this

compressed natural air car is “OneCAT.” OneCAT has no gas costs or fossil fuel emissions

which makes it a very attractive car for the more mature markets but also the upper classes in

developing countries at this point. It is also a great car to have in highly populated countries,

such as China and India, because pollution with its adverse effects is a very large concern.

OneCAT also is more efficient that any other present Hybrid car, so when inventors think they

have the best product out on the market, they actually do not. There will always be something

else to invent or improve on and Tata Motors is a prime example of that.

Tata Motors is unique in a way in which when it buys a company. Tata Motors keeps the

original management of that company intact. The company that Tata Motors purchases will look

exactly the same in terms of management and organizational structure as if it was never

purchased by Tata Motors.

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WEAKNESSES

There are strings attached with every new invention and improvement on products.

These strings are Tata Motors weaknesses and what other groups perceive as their weaknesses.

One weakness that Tata Motors faces is its inability to meet safety standards. Although they

have made the most inexpensive car out on the market, it has yet to pass all the safety standards

which is a legal factor. Some consumers and pessimists inquire as to how Tata Motors can make

such a cheap car and withstanding a car accident or not just falling apart after hitting something

once. Pessimistic people also want to believe that car manufactures are already doing everything

they can to keep costs low for the consumer, and if that is the case, then putting the cheapest car

out on the market automatically questions if it is safe to drive.

Tata Motors only have been making passenger cars for the approximately last ten years.

This can be viewed as a weakness from a customer standpoint since a decade does not seem like

a lot to consumers and therefore they will think that Tata Motors is inexperienced car

manufacturing. Consumers will wonder how a car manufacturer can be in the market for 10

years and produce the cheapest car out on the market. How can Tata Motors manufacture such

a cheap car that meets emission and safety standards being so young? This causes consumers to

be skeptical.

Another weakness that Tata Motors faces is within its domestic market. Car sales in

India are less than 1 million annually. This draws a problem because Tata Motors may not get

the sales that the company hopes for and how can they sell cars to people who are not buying

cars?

The new and innovative OneCAT still has some rough spots that need to be worked out

and one of them is that it has pollutant emissions and greenhouse gas emissions from the

generation of electricity used to compress the air. So although it is marketed as being emission

free, it technically is not and this is another weakness. Also, OneCAT only goes 62 miles per

hour for 56 miles in an urban cycle. This is not very far and Tata Motors will have to improve

on this weakness as well as the emission weakness in order to draw more comsumers to this new

automobile.

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OPPORTUNITIES

Tata Motors has already opened the doors for many new and innovative ideas, but not

only for their company, but their competitors as well which could turn into a threat. One of the

major opportunities that Tata Motor faces is that as of right now 90 percent of China and India’s

adult population do not own cars, partly because cars are costly and require more expenses after

purchased. So the market for a low-priced car is huge which benefits Tata Motors perfectly

since they produce the lowest priced car on the market. This is a huge opportunity for Tata

Motors because if they can get their feet into that market of people that do not have cars because

they cannot afford them, then they will make large profits down the road. China’s total car sales

are estimated at over 8 million dollars annually and they were the world’s second largest car

market in 2006. China’s government forecasts that demand for cars will top 20 million by 2020.

With Tata Motors in the market with the cheapest car, China’s demand for cars will probably

increase even more significantly which will in turn increase sales for Tata Motors.

Japan, North America, and Europe automobile sales went up over the years because of

demand for smaller cars increased. This demand for smaller cars is a great window of

opportunity for Tata Motors because not only are their cars small, but they are cheap and

environmentally friendly as well. Once people in these countries get Tata Motor automobiles

then their automobile sales will continue to rise.

As of March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the

British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors

since they will acquire the large knowledge base and technologies for producing and marketing

luxury vehicles. This acquisition helps them dive into the more mature markets in Japan, Europe

and the U.S. The knowledge transfer from these two companies will greatly improve Tata

Motors ability to continue to grow and flourish in both developing and developed market

segments.

THREATS

The obvious threat to Tata Motors is intellectual property rights. Tata invented the

cheapest car on the market and every automobile manufacturer wants to know how Tata did it.

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Headhunters are soon going to find out this valuable information and make it available to their

own company. This is a huge threat to Tata Motors because at first they had low competition,

but once other car manufactures find out how they invented such a low cost car, and then these

companies too will jump on board and design their own line of low cost automobiles. On one

hand this can be a threat, but on the other it may not affect Tata Motors at all because people will

still want to purchase their product since they were the pioneers of all the excitement.

Other companies are starting to compete for some of this market share. In fact, the

Pakistan’s Transmission Motor company has built a basic four-wheeler for only $2,100. This car

is considerably cheap and the Pakistan Transmission Motor company started exporting them to

Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures

that will be producing low priced cars.

Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the

Nano requires gas, but those who purchase the Nano probably do not have a lot of money and so

if gas prices keep jumping up then that market of consumers will not be able to purchase the car.

If OneCAT can be made as cheaply as the Nano then that will benefit the consumers even more

because they will get a car that does not run on gas and it will be cheap to purchase. On the

other hand, gas company will not want OneCAT to hit the market because there will be no

profits to be made off the vehicle. Gas companies have a lot of say over the automobile industry

so this could be a big threat.

Another main concern that Tata Motors faces is that cheap cars in India will have an

adverse effect on pollution and global warming because most of the population will be able to

afford the cars. With more people driving cars there will be more accidents and deaths, as well

as higher fossil fuels leaked into the environment causing even more pollution then there already

Tata Motors is family owned and this can potentially cause problems down the road because

some family members can become greedy and money hungry. Once they really start to rapidly

grow then there may be family feuds and people not pulling their part.

Another threat is the whole point of their cars being made with cheap plastic. Are these cars

durable? Will they hold together in a head-on collision? As off August 2007 there was no

further information on this topic though.

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REFERENCES :-

http://en.wikipedia.org/wiki/Price_skimming http://www.wisegeek.com/topics/price-skimming-strategy.htm#

: http://wiki.answers.com/Q/What_is_Market-Skimming_Pricing#ixzz1GsZYcSDV

http://www.brighthub.com/office/entrepreneurs/articles/108725.aspx#ixzz1GsbzXc5R

ttp://wiki.answers.com/Q/

What_are_the_Recent_examples_of_market_penetration#ixzz1GsZ3K6TH

Penetration Pricing - type, Skimming versus

penetration http://www.referenceforbusiness.com/small/Op-Qu/Penetration-

Pricing.html#ixzz1IXVU1Tj5

http://EzineArticles.com/1341563

 Penetration Pricing - type, Skimming versus

penetration http://www.referenceforbusiness.com/small/Op-Qu/Penetration-

Pricing.html#ixzz1IXVh8B4o

www.sxc.hu mrceviz Case Study: How to Price Your Products to Increase Profits." Business Owner. May-June

1995.

http://wiki.answers.com/Q/FAQ/6275-28

Appendix A

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Tata Motors Timeline:

1945- Tata Engineering and Locomotive Co Ltd (TELCO) is set up as a locomotive maker at the end of World War II

1954- Company shift to making trucks in a joint venture with Germany’s Daimler-Benz

1961- Exports begin with the first truck begins being shipped to Ceylon (present-day Sri Lanka)

1977- First commercial vehicle manufactured in Pune

1983- Manufacture of heavy commercial vehicles commences

1986- Production of first light commercial vehicle

1991- Launch of the first passenger car, the Tata Sierra. One millionth vehicle rolled out.

1994- Enters joint venture to make Mercedes Benz cars in India

1999-Beings production of India’s first fully indigenous passenger car, the Indica

2002-Ends joint venture with Daimler

2002-TELCO is renamed Tata Motors Ltd.

2003-Tata Motors Ltd. Announces plan to build world’s cheapest car for 100,000 rupees (1,250 pounds or 2,500 dollars)

2004- Acquires South Korea’s Daewoo Commercial Vehicle Company and is listed on the New York Stock Exchange

2005- Buys 21 percent stake in Spanish bus maker Hispano Carrocera SA, launches mini-truck, the Ace

2006- Signs initial agreement with Fiat

2008- Unveils one-lakh (100,000 rupee) “People’s Car” also know as the Nano. Acquires Jaguar and Land Rover.

Appendix B

Top Management of Tata Motors Ltd.

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Name Age Since Current Position

Sait, Zackria -- 2007 Vice President - Technical Services

Mani, Shyam -- 2007 Vice President - Sales & Marketing, CVBU

Rajarao, M. -- 2007 Vice President - Manufacturing, Pune

Girotra, K. -- 2007 Vice President - Lucknow Works and FBV

Tambe, S. -- 2007 Vice President - Human Resources

Thakur, R. -- 2007 Vice President - Finance

Gurav, P. -- 2007 Vice President - Corporate Finance - Accounts and Taxation

Krishnan, S. -- 2007 Vice President - Commercial, PCBU

Dube, Rajiv -- 2007 President - Passenger Cars

Arya, A. -- 2007 President - Heavy and Medium Commercial Vehicles

Mehta, V. 73 1998 Non-Executive Independent Director

Wadia, N. 63 1998 Non-Executive Independent Director

Palia, Sam 69 1998 Non-Executive Independent Director

Soonawala, N. 72 1989 Non-Executive Director

Irani, Jamshed 71 1993 Non-Executive Director

Gopalakrishnan, Ramabadran 62 1998 Non-Executive Director

Tata, Ratan 70 1996 Non-Executive Chairman of the Board

Mashelkar, Raghunath 64 2007 Independent Director

Mankad, A. -- 2007 Head - Car Plant

Telang, P. 59 2007 Executive Director - Commercial Vehicles

Sethna, H. -- 2007 Compliance Officer, Secretary

Ramakrishnan, C. -- 2007 Chief Financial Officer, Executive Director

Kant, Ravi 63 2005 Chief Executive Officer, Managing Director, Director

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Appendix C

Above: Tata Nano

Below: Tata OneCAT

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