Indian consumers are once again wooed by the ‘Cost‘ mantra. With the current wave of Tata Nano, it looks feasible that it is going to replace Maruti Suzuki for the title of ‘People’s Car‘. The registrations open for Nano are going high over the past few days, perhaps no wonder that it would cross the upper limit for the registrations.
A few years back, Nokia’s ‘cost leadership‘ in mobile phones has made possible the Communications revolution in India. The constant drop in the costs of the mobile phones to as low as Rs.1000 has made the cell phones reach every corner of the country. The low calling costs , high growth rate in the services, larger service coverage were the outcomes of these massive changes, ofcourse the reasons for low device cost and the low maintenance costs are complementary. Even till date, Nokia remains the market leader in the mobile phones market.
However, the small-car revolution in India has not started with Tata Nano. Maruti Suzuki 800, started way back in 1984 is famously known as the people’s car. Sold at about 2 Lakh rupees, this 796cc car has made a remarkable impact on the automobile industry in not just India, but all over the developing countries in the world. Good mileage, low maintainance cost have also been the key selling factors of Maruti, and the 2.5 million sales since 1984, stands as a testimony for its popularity. About 25 years after the launch of Maruti, the Tata group has finally made its entry into this attractive market, with Tata Nano, with even more drastic cost-cutting in the manufacturing. Tata Nano’s price tag of 2000 USD is attractive for the common man, across the world, and hence looks to capture a substantial market share in this field. Good mileage, attractive design, better interior space and good standards in pollution might push Nano to the Numero Uno position. Even though the first year sales of Nano seem very attractive, we would have to wait and see how the subsequent response would be.
As we see, the next possible ‘cost’ revolution on these scales would be in the field of Digital TV. Though it seems like it has already started, I predict it to pick up more momentum soon. There has been a consistent drop in the device costs and the maintenance tariffs in the Digital TV, as well as big players like Reliance, Bharti Group and Sun has entered and competing for the market share from Tata and Zee. The monthly maintenance cost from Sun is as low as about Rs.50, though the initial installation costs of all the service providers hover at about Rs.1500-2000. A question arises, Can they get any lower?
The answer seems to be YES! Still it seems tough to replace the initial costs, since the reduction is possible only with breakthroughs in the technology. But, the maintenance costs can go to Zero (similar to that of FMs or Radios), if the economics allow the companies to sponsor these costs from their advertising inputs into their channels. If this is possible, there is a natural advantage for DishTV and Sun, compared to Tata, Airtel or Reliance, since Sun and Zee are popular and hold a large number of channels.
The cost leadership remains an important factor when it comes to the markets of developing countries like India and China. However, a high compromise at the quality for the sake of cost reduction can prove to be pit-fall to be avoided in the process.