Question 1: Discuss the critical factors which led to the success of Tata Ace.

Answer: Tata Motors, earlier known as Tata Engineering & Locomotive Company Ltd. (Telco), was established in 1945 after its parent company, Tata Sons purchased a plant that manufactured passenger carriage under frames for the Indian Railways, from the Government of India. Telco used the plant to manufacture steam locomotive boilers and other engineering products, under the name Telco. The company also entered into collaborations with Marshall, Sons & Co, UK to manufacture steam road rollers, and with Krauss-Maffei to manufacture steam locomotives. In 2001, Tata Motors experienced a difficult phase with severe losses due to the decline in vehicle sales; spiraling manufacturing costs and a capacities expansion plan that cost IRs 13 billion. The difficult phase prompted the company to completely re-examine the market and customer requirements. This re-examination threw up several interesting findings. Consumers in India were in need of vehicles to be used for the last mile. Moreover, the problem arose due to ban on overloading by Supreme Court, discouraging the old, polluting and uneconomical vehicles leading to incremental volumes in the last two years; and scrapping vehicles that are more than 15 years old, potentially unleash a huge replacement demand. The consumers were also facing problem with the existing vehicles due to traffic, entry and timing barriers and poor road connectivity. The solution to the need of the consumer due to the existing vehicles by Tata was to fill the gap between Light Commercial Vehicle and 3 wheelers with a less tonnage 4-wheeler commercial vehicle in the market. Tata reached to this solution to the market need with the fact that the Government had planed for the road network expansion; higher GDP growth positively correlated with truck penetration; and high probability of increased demand in LCV segment. Also the company did not have any of its products in such segment. Tata lacked its product portfolio in the segment greater than 45 tons and less than 2-ton vehicles. Tata Motors decided to develop a vehicle, after a study it conducted found that customers wanted a last mile distribution vehicle that had low maintenance costs, higher driver safety, and better driving comfort. Tata decided to target the vacant segment and launched 1MT TRUCKACE. Ace, India's first indigenously developed sub-one ton mini-truck was launched in May 2005. In line with these customer requirements, Tata Motors developed and launched Ace, which became a success in the market. It was quickly sold out with demand exceeding supply, and created a new segment -the small commercial vehicle (SCV) segment, an area earlier dominated by three-wheel carriers. Analysts opined that Ace had changed the dynamics of the LCV market in India by creating a new market segment termed the SCV segment. Ace rapidly emerged as the first choice for transporters and single truck owners for city and rural transport. By October 2005, since the launch of Ace, LCV sales of Tata Motors had grown by 36.6 percent to 28,537 units due to the rising demand for Ace.

In June 2006, the Society of Indian Automobile Manufacturers3 (SIAM) reported that the light commercial vehicle (LCV) segment in India recorded sales of 13,373 units in May 2006, up from 9,460 units recorded in May 2005, which constituted an increase of 41.4 percent. Analysts said that one of the main factors for the massive growth in this segment was the successful response to 'Tata Ace', a mini truck produced and marketed by Tata Motors Limited, India's largest automobile company, and part of the Tata Group. In addition to targeting the domestic market, Tata Motors launched Ace in Sri Lanka in May 2006. The Company reportedly had plans to export Ace to other overseas markets like Bangladesh, South Korea, the Gulf countries, the CIS countries, and Africa. It was reported that the company was also receiving orders for Ace from customers in the US and Western Europe. However, with the success of Ace, many competitors began to set their sights on this new market segment. Analysts expected Tata Motors to face stiff competition by 2008 when companies like Bajaj Auto Ltd. (BAL), Mahindra & Mahindra Limited (M&M), Ashok Leyland, Piaggio Vehicles Pvt. Ltd. (Piaggio), etc., brought out their own vehicles in direct competition with Ace. This would lead to price competition and lower margins in the future. Question 2: Critically examine the trageting and positioning of Tata Ace and comment on its Marketing Mix and the appropriateness of the marketing mix in the trget segment. Answer: Tata Ace is a mini truck introduced by Tata Motors Ltd., Indias largest automobile company, in 2005. In 2001, Tata Motors experienced a difficult phase with severe losses due to the decline in vehicle sales; spiraling manufacturing costs and a capacities expansion plan that cost IRs 13 billion. The difficult phase prompted the company to completely reexamine the market and customer requirements. This re-examination threw up several interesting findings and concluded Tata to develop ACE. Tata Motors decided to develop Ace, after a market study it conducted found that customers wanted a last mile distribution vehicle that had low maintenance costs, higher driver safety, and better driving comfort. Tata Motors developed this vehicle using their inhouse expertise. Ace created a completely new market segment and became a huge success in the Indian market. On May 5, 2005, Tata Motors commercially launched the Ace in Bangalore. At the launch function, the company said that Ace was being introduced at the right time, when the development of road infrastructure was being emphasized and goods distribution movement was increasing. Tata Motors was convinced with the fact that the development of road infrastructure would led to an increase in the distribution of goods across the country, based on the hub-and-spoke model. Recognizing the growth trend and anticipating the need for a last-mile distribution vehicle, Tata had developed Tata Ace.

They also anticipated the opportunity in the one ton payload segment, which witnessed significant growth and being serviced by 3-wheelers. Ace is being positioned at this market." Ace was initially launched only in the Southern states of India, namely Karnataka, Tamil Nadu, Andhra Pradesh, Kerala, and the Union Territory of Pondicherry, as they were considered as key markets for small tonnage vehicles. The marketing mix used by Tata was very effective. They fixed their target on the individuals such as three-wheeler owners, the truck owners and trucking fleet owners and the first time LCV purchasers. Tata wanted these people to have Tata Ace as their next vehicle. They targeted the southern part of India initially. They positioned their product as small yet powerful. They said the product is small for the transportation of goods up to the last mile and the same time they claimed it to be powerful enough to load one ton and can give higher driver safety and better driving comfort with low maintenance cost. They compared their product with a baby elephant and said it to be Chotta Hatti.

The product was also designed in a way to have a commercial look and better space utilization. It was places in the segment where three-wheel vehicles were operating and it had 4th wheel up gradation. It was ideal for both the city and rural areas. It could be used for the transportation from vegetable to cargo. It gave comfortable conditions for the driver allow the ACE to travel over 500 km a day with low operating costs and highly reliability. It was a truck with better interiors such as styled dashboard with tray, digital clock, radio fitment provision, utility tray and clearly visible instrument cluster; smooth external finish, flat faced large commercial vehicle look, lockable glove-box for keeping valuable documents, etc. For the pricing, they anticipated their product to be of leadership quality and perceived quality higher than competing 3-wheelers. Their initial price was just beyond the max price of 3-wheelers. They analyzed the competitors costs, prices and offers and found that the competitors sold at a lesser price than the target price of ACE. Since, the value package of Ace was higher than the competitors. The Final Price was around 12% over the maximum price of three wheelers in the market that was costlier than autos used for road transport.

Tata really needs to worry about the price of ACE, as it is even costlier than Maruti Omni. Moreover, many competitors have begun to set their sights on this new market segment. Companies like Bajaj Auto Ltd. (BAL), Mahindra & Mahindra Limited (M&M), Ashok Leyland, Piaggio Vehicles Pvt. Ltd. (Piaggio), etc., have brought out their own vehicles in direct competition with Ace. This would lead to price competition and lower margins in the future. Tata also need to focus on the after sale service of Ace and the competitors playing in the same segment. The placement of the product was also important. They made the product available at right place and time. In doing so, they had a sales outlet at every 40 to 50kilometers. Existing dealers were to act as hubs and set up dealerships. Again each dealer was asked to have 15 to 20 stores. They set up more than 300 new distribution points in 3 months. They also preferred to have stores close to the target market. As they targeted the southern part of India, located the plant in Pune. Pune was the nearest plant of Tata to the southern part of India. With such a marketing mix, Ace rapidly emerged as the first choice for transporters and single truck owners for city and rural transport. LCV sales of Tata Motors had grown by 36.6 percent due to the rising demand for Ace. Ace has changed the dynamics of the LCV market in India by creating a new market segment termed the SCV segment. Apart from these market mix, Tata has a strong brand name and a good consumer relationship. Tata is a company with continuous innovation and has provided the opportunity of finance to the buyers. Tata has a tremendous market opportunity in rural market as well as to export. Tata Motors launched Ace in Sri Lanka. The Company has plans to export Ace to other overseas markets like Bangladesh, South Korea, the Gulf countries, the CIS countries, and Africa. The company has also received orders for Ace from customers in the US and Western Europe. This is due to the high growth rate of LCV and further fragmentation of market.

Above all the main reason for the success of Ace was that customers were given a product that looked and performed better than the existing alternatives. Various value enhancers such as car-like features in the drivers cabin, attractive finishing, etc. helped improve the value perceive.