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With the launch of the Tata Nano, will Maruti’s small car strategy change?

The Maruti 800 was truly an iconic product credited with revolutionising the industry. But, its stature seems under threat now. Apparently, Tata’s prospective Rs.1 lakh car (Nano) is the car in contention for the coveted spot. “It’s a brilliant car from the customers’ point of view. The on-the-road price for Nano is somewhere around Rs.1,30,000; this means that there is a price differential of Rs.60,000 when compared to the 800,” says Ramnath S, Director, idfcsski. Certainly a price that makes it irresistible and can potentially drive volumes.

Inspite of a skeptical S Nakanishi, MD, Maruti Suzuki, it was earlier reported that a threatened Maruti was toying with the idea of slashing the 800’s price in order to effectively compete with the Nano. Analysts too agree that (if Maruti wants) it is possible as the car has been mass produced for decades and components vendors are now in a comfortable position to facilitate. But, “the volumes of Maruti 800 will increase only when a good price is quoted against the Nano. Vendors then might support the 800’s need to be re priced,” adds Ramnath. However, Maruti Suzuki has been on a relentless struggle to potentially replace the 800 with the best-selling Alto for some time now. In December 2007, Alto sold almost two times the 7,000 units that the 800 sold. This implies that for Maruti strategists, the company should now move up the value chain and focus more on being a holistic car company rather than being perceived as a small car maker. Therefore, with its fast-growing portfolio, it seems that Maruti is less affected by Nano than previously expected and as such a rationale to re-price the 800 is uncalled for.

However still, if volumes are the growth drivers for a company, then Maruti may lose its dominance to the Tatas. The Nano will create a niche for itself and the novelty factor enjoyed by Nano can further over-ride the 800’s appeal. So, if Maruti wants to retain and strengthen its economies of scale, it must come out with an alternative to Nano. Now the ball is in Maruti Suzuki’s court, but is it too late to follow suit? As we said, revolutions happen once in a lifetime.

B&E edit bureau : Karan Mehrishi with inputs from Sachin Bharel

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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