Business Marketing

Term 5: PGDM 2017-19

Case Analysis
Tata Ace

Submitted by:
Group No. 2
Sl No. Roll No. Name of the Student
1 17004 Anshul Babu
2 17029 Rakshit Shah
3 17062 Ikenna Watson
4 17084 Saurabh Singh
5 17103 Ankita Pawar
6 17138 Suman Kumar

Submitted to:
Sugant R
Associate Professor– Marketing
SDMIMD, Mysore

SDM Institute for Management Development

Mysore, Karnataka, India

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1. Map the ‘new product development’ process of Tata Ace.

Stages of new product development of Tata Ace:

Idea Generation

 In 2001, Tata motors posted a loss of Rs.5 Billion and downturn of commercial
vehicle sector.
 Absence of smaller than 2-ton vehicle threatened the company to develop a new
product.
 A niche vehicle, a new product category- serving the unique needs of Indian
transportation sector
 Need for ‘Last mile’ delivery truck
 3-wheeler has disadvantages of safety and loading issues.
 Government is also planning the construction of Golden quadrilateral
 Improved infrastructure helps the villages to connect to the cities.

 The GDP per capita of India is very low which recommended for low cost vehicle to
be launched.

Screening the idea

 This was done by doing a smaller research to understand the needs of the customers
for a four-wheeler commercial vehicle.

 Customer perspective Wants- Big truck in small package, small load transport
segment and a four wheel.

 The road density is very low for India, so it was must for the automobile manufactures
to deliver a better vehicle then three-wheeler that could reach the remote areas having
unpaved roads.

 Kant, head of Tata Motor’s commercial vehicle Division, and other executives
realized that the company would need to take drastic measures and outlined three
focus area: cost reduction, quality improvement, and new-product introduction.

Specifying features

 A 4-wheel vehicle- basically a scaled down version of 4-ton 407 truck

 Customer transport of 750-1500 kg for 100-200 km

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 2 Cylinder Diesel engine

 Safety and comfort- higher M1/N1 standard that suits Indian road conditions with
decent safety measures

Product Development

 Tata Ace was developed using aggregate outsourcing and working on all the design
issues faced.

 First to introduce Cross-functional teams for product development with product

preparation process 3P involving stakeholders at early stage

 Low budget was a concern as they had only 2 billion $ for the overall budget- hence
required closed supervision and monitoring on costs and investments

 Overload capabilities- CAD prototypes and design team made it possible for the Ace
to carry overload and suits the India wants.

 They also followed competitive pricing in face of competition from the three-wheeler
segment.

 For better performance innovative 2-cylinder diesel engine used by experts

Testing the Concept

 Tata Motors is the market leader and had market share of 60 per cent and a large
manufacturing capacity. At that time recession cycles in the truck sector were
extreme. So, the top management began thinking afresh on ways to deal with the
challenge and insulate the company from future downturns.

 Tata motors setup the Cross functional teams to work on the Tata Ace Idea.

 Initially the firm introduced ACE in 5 states in western and Southern parts of India
because of the 3- wheeler demand was more

 First it was available around 25% of the country and later pan India.

Product Launch and Commercialization

 Company create the value for customers in terms of economies and financially

 Dealers were educated about the functionality and operating-economically in interest

of customers for their benefits

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  The marketing of Ace was done to reach the emotional needs of the customers.

 Company advertise the product with Indian Advertising agency and coming up with
‘India’s first Mini truck’ concept.

 Targeting the locals in their way, positioning

 Try to open the store every 40-50 KMs.

 Suvidham- training and involving local mechanics for quick repairs for the ACE

 54% of customers were first time commercial vehicle buyer.

 TATA Ace exceeded the expectations of TATA motors and its annual production target
of 30,000 vehicles was sold in less than one year.

2. Discuss the approaches to new product development of Tata Ace

Successful product development requires fundamentally improved approaches to organizing

the development process, reducing waste, and providing products to meet customers’ needs in
order to respond to the competitors. So the various approaches adopted by Tata Motors in
order to develop a new product that is Tata Ace, can be categorized as:

 Environmental Factors
In 2001, Tata Motors posted a loss of ₹5 billion, which was the largest loss in the
history of any Tata company and the largest loss ever recorded for any private-sector
company in India. This was due to cyclical downturn in the commercial-vehicle
segment and an economic recession.
 Marketing Factors
Company started gaining a reputation for being arrogant, slow to respond to customer
needs, and offering unreliable products.
 Strategic Factors
The company realized that in order to tackle the environmental and marketing factors
they need to take drastic measures and so they outlined three focus areas: cost
reduction, quality improvement, and new-product introduction. After conducting
brainstorming sessions and several reviews, they observed that truck penetration in
other countries was highly correlated with per capita GDP and road density. So they
concluded that the forecasted growth in Indian GDP and infrastructure, will lead to
more truck penetration for two reasons:

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 a. The growth of developing better highway system between major cities and
secondary road networks within various states will increase the demand for
larger vehicles that could carry bulk loads of more than 45 tons from hub to
hub and lower per unit cost of transport.
b. The construction of an all-weather tertiary road network connecting rural
towns would create a shift in the movement of goods and people. The demand
for vehicles that could service the “last mile” would increase, as they can help
in the transportation of small delivery loads on a full truckload basis from
various hubs to urban and rural consumption centres.

This led to the idea generation of a “cheap, nasty and rugged vehicle for India”.
This new small commercial vehicle, eventually named the Ace, would help fill the
gap in the company’s product portfolio as the “last-mile” distribution vehicle.

 Managerial Factors
For the implementation of the project, a younger engineer was assigned the head of
the team. The Ace team was the first at Tata Motors to implement cross-functional
teams for the product development as well as the first to make extensive use of the
production preparation process (3P). A Japanese concept where it allowed the team to
involve stakeholders such as suppliers, customers, marketing team, dealers, at an
earlier stage in the development process and think about all potential ways of
completing each step.
 Organizational Factors
Due to financial constraints only five people were assigned to the Ace team on a full-
time basis. Whereas during the course of its development, the team would draw on the
experience of more than 400 professionals within the company, but most would spend
only a portion of their time on the project. There were strict cost controls for the
projects. The total development budget was not to exceed ₹2.2 billion.

The company carried out an extensive market research by conducting interviews with more
than 4,000 truck and three-wheeler operators in the rural and urban areas of India. Through
which they decided that the customers were not willing to pay more for Ace than they would
pay for a three-wheeler. So, finally they set a price target of ₹200,000 for Ace. They
segmented the market in the following ways:

 Functional Market Segmentation

Segmentation based on the needs of different customers. The team estimated that 45%
of the Ace’s customer base would come from people planning to purchase three
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 wheelers, 15% from potential pickup and light-commercial-vehicle purchasers, and
40% from first-time commercial vehicle purchasers.
 Customers market segmentation
Within the functional market segmentation, further segmentation can be carried out
into four groups: performance sensitive, balanced perspectives, return-on-investment
sensitive and acquisition price constrained.

After segmentation the team faced a major challenge related to design of the product. Which
they were able to overcome by using computer-aided design (CAD) prototyping system. They
even created an innovative two-cylinder diesel engine concept based on the Indica passenger
car’s four-cylinder engine, this would minimize the cost due to parts sharing and the
performance levels would be just right for the vehicle. The team decided to increase the
outsourcing from 70% that was usually followed in the company and reduce the suppliers.
40% of the Ace’s parts were shared with other Tata Motors products so that additional savings
could be generated through bulk purchasing, in short to minimize the cost of the product.
With the above approach the company was able to meet the budget allocated for the new
product development.

3. What are the factors that resulted in the success of Tata Ace?
This is the case of TATA Ace which really disrupted the market in a big way. ACE is a mini
truck with the engine capacity of less than one ton. ACE was launched by TATA motors in
year 2005. It was mainly manufactured by the company to solve or to reduce the problems
generally faced by the transporters now a days with the changing economy. The main reason
behind launching this product was comfortableness of the customers. As customers
requirement went up company first had a market survey or analyses, for this their engineers
went to talk to the small traders, transporters to know the problems they are facing with old
product and the discussion with the customers leads to ultimately launch of TATA ACE.

Few reasons which lead to the success of TATA Ace:

Low operating cost:

 Proven & Trusted 702cc 2-cylinder IDI engine

 Vehicle renowned for easy service and low maintenance

 Best ARAI certified mileage of 21.5 kmpl* and 20 on road.

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  Best warranty of 2 years or 72000 kms (whichever is earlier)

Reliable and rugged attributes:

 Heavy duty truck like Chassis Frame

 Proven Synchronmesh Gearbox

 Durable truck like Front & Rear Axles

 Rugged front & rear leaf spring suspension

 Payload capacity of 0.75 tons squared.

Increased profit for consumer

 The most optimum HP/Torque/Gradeability combination for carrying heavy loads

with ease

 Payload of 710Kg and load body length of 7.2 feet to carry any load

 Tata Ace is the only low-cost product with the highest return

Comfortable and safe to drive:

 Most optimal Weight Balance ensuring even load distribution

 A TCR (Thyristor controlled reactor) of just 4.3m ensuring easy manoeuvrability.

 An ergonomic steering wheel for a fatigue free driving

 An utilitarian dash board.

 The team used crash- test computer simulations and developed a cabin that met full
frontal crash requirements while still maintaining flat faced stance.

Finance option:

 Third party financing option availability.

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  Five-year loan term compares to three years loan period by competitor.

 Monthly payment was lower which leads to cost advantage for customers.

 The cost of TATA ACE was 50% cheaper than other four wheeled LCV.

Marketing and Distribution:

 Their advertisement was based on rationales and emotional consideration.

 Worked with Indian advertising agency to create newspaper, television and wall
painting advertisements.

 The main message was to highlight “Free themselves” and wanted to create “Feeling
good about your job” as aa emotional highlight.

 In distribution they aced higher coverage in rural areas.

 Sales and service outlet in every 40-50 kilometres.

 “Suvidham” program to trained existing rural mechanics and aware them about the
procedure of maintenance of TATA ACE.

 New dealership format 1S in which dealer is responsible for only sales compared to
3S (sales, service, spare)

*Few information is taken from the official website of TATA Group*