The new product development strategy of Tata Motors

The research and the literature review carried out on the topic ‘how successful is the new product development strategy of Tata Motors?’ and with the methodology suggested in the earlier chapter some important findings can be drawn. The study on the topic results in the findings based on the new product development strategies and its impact on the performance of a company.

4.1 the significance of new product development strategy

The research findings points out various concerns for the strategy of new product development of Tata Motors which can be viewed in the literature review which perceives the existence of new product development strategy by Tata Motors. Every year the company introduces and modifies new products in the car segment. The innovative feature of the company and its experiments of new products i.e. its new low price car, Tata Nano and other vehicles were suggested with the evidences in the literature review.

Hence, it is evident that Tata Motors gives due importance to new product development strategy through its research and development sector. The company also holds a unique research and development department which gives more significance to new products and the strategy on new product development.

4.2 measuring the performance of new products

The research findings also points out in brief the new products launched by Tata Motors and its performance on the company’s success. The new modifications made by Tata Motors also help the company to be at the forefront amongst its competitors. Another new launch for the company’s low cost car Tata Nano in 2008 and the international collaboration of Jaguar and Land Rover have also gained global attention. Such international awareness also helps the company to make its way into premium luxury car market.

Novel products of Tata Motors are also accepted by the customers which is evident from the adding up of the middle class customers through Tata Nano. Hence, developing such new products has also made the company to enter new market segments. Introduction of new cars by Tata Motors has also aided on the increase in the sales and market share of the company.

Analysing the critical literature review also supports the argument that the new product launches has been successful for Tata Motors and has also overcome the expectation of the company. Hence, the company’s new product development strategy has in turn proved to be an important factor for the success of the company. However, the new products are developed by the company through its spending and importance given on the research and development sector. Persuading such research and development activities has also helps the company to adopt appropriate strategies.

4.3 impact of introducing new products on Tata Motors

As suggested in the methodology, the company reports helps to analyse the impact of new products on Tata Motors. Hence, from the company reports it can be analysed that by examining the turnover and profitability ratios of the company over the past five years from 2004 -2009 it is easy to measure the success of new products. Such examination also helps to support the role that new products play in the revenues of the company. The aim of calculating such ratios is also to measure the performance of new products on the success of the company.

Various ratios that are calculated are:

Earnings per share (EPS):

The Earnings per Share ratio helps to measure the performance of the company. The EPS ratio of Tata Motors was found to be nearly at 53 which was the maximum in 2008 while it was nearly 18 in 2009.

Dividend per Share:

Dividend per share helps to measure the profitability of the company. Dividend per share of Tata Motors was 15 which were highest in 2007 and 2008 while it decreased in 2009.

Dividend payout ratio:

Dividend payout ratio also helps to measure the profitability of the company which is distributed among the owners of the company. Dividend payout ratio of Tata Motors was maximum in 2005 and minimum in 2009.

Gross profit margin:

Gross profit margin helps to measure the turnover and the profits earned by the company. Gross profit margin of Tata Motors was high from 2005 to 2008 but has declined in 2009.

Net profit margin:

Net profit margin helps to measure the actual sales and profits made by the company. The net profit of the company was nearly 7 percent in 2008 while it has declined to nearly 3.5 percent in 2009.

Inventory turnover ratio:

The inventory turnover ratio helps to measure the turnover of the finished product in relation to the sales. The inventory ratio of Tata motors was nearly around 13 from 2005 to 2009.

The above research finding shows the financial analysis of the company in order to find the impact of introducing new products. The above ratios also give evidence and support for examining the company’s financial analysis.

However, it can be critically argued that the new products introduced by the company may not be the sole reason for the company’s revenue to increase. Developing new products may only be one of the factors for the increase in the revenues of the company.

4.4. success and limitations of new products introduced by Tata Motors

Tata Indica which is the company’s first passenger car is considered to be the revenue attracting car for the company. Some of its luxurious features manufactured by Tata Motors like power steering, the locking system, powerful disc brakes etc. attract large number of customers. However, the features and performance of the car is not only appreciated in the domestic market but also in the international markets and since, 2004 the models of the company have also been exported to many countries.

The launch of Indica V2 Xeta in 2008 and Jaguar XJ are also considered to be the best cars launched by the company. These new products are designed with latest technology and highly advanced features. However, it has been argued that the interiors of these cars need more improvement in its quality as it is made up by considering the cost saving means by the company.

But when all major car manufacturers suffered heavy losses and where some even had to close down their businesses because of global recession, in 2008 Tata Motors launched new Tata Nano which is the world’s cheapest car. Such car is mainly designed for the middle class Indian families. The company’s prompt arrival of such cost effective car also helped the company to be successful during the time of global recession.

However, Tata Nano which received global attraction lacks in availability of space and also seems to be less economical. The car also seems to have unmet the quality standards and hence, may not be a success mainly in the developed countries. This is because, in the international markets, there is global and intense competition which forces the companies to improve the features and quality of the product. As a result of this customers in the international markets have high expect with regard to the features and quality of new products (Waeyenberg and Hens, 2008).

The analysis of critical review of literature also supports that it is necessary for the companies to develop high quality products and not merely a low quality low price product. Developing a product of low price and being first to the market helps in gaining competitive advantage in the short run but in the long run due to the low quality of the product it is possible for a product to fail. Developing such low quality product may also have a crucial impact in the minds of the customers which may affect the brand image of the company ()

4.5 the role of new product development strategy in the success of Tata Motors

The analysis of the secondary data and the review of literature also supports the argument Developing new products do have a great advantage on the company’s portfolio for products. Even for Tata Motors its passenger and commercial car segment have benefited from the new products introduced by the company. The research done also suggests that the ability of a company to be successful is largely influenced by the new products launched. This is because as the number of alterations increase, the demand for the innovated product also increases. Hence, new product development strategy and process are very crucial elements to attain higher levels of innovation in the long run.

The analysis of the literature review and secondary data also states that the new product development strategy plays a significant role for prompt delivery of new products which has also helped Tata Motors to build a strong brand image. The strategy adopted by Tata Motors is also successful which can be seen from the achievements of the company by launching new products successfully. The study also points out the critical role that new product development strategy plays in developing new products which leads to higher revenues and growth of the company.

Chapter 5

Research analysis and discussion

5.1 the significance of new product development strategy

The review of literature and the research findings has helped to accomplish the objective of knowing the importance of new product development strategy on Tata Motors. Introducing and developing new products timely has been an important element for the success of Tata Motors. The company’s strategy to take into account various factors before developing a new product such as customer expectations and competitiveness of reducing the cost of the product also has benefited it to be successful. The new products launched by the company which can be analysed from the research findings also supports that novel products play an important role in the success of the company (Chaturvedi et al., 2009).

The analysis of literature review also supports that in the current business world there are many economic and environmental changes. Hence, it is essential for companies to adopt such a new product development strategy that helps the company to gain competitive advantage and run successfully in the long run. Adopting appropriate new product development strategy helps the companies to survive and make continuous improvements.

From the findings it can be evident that Tata Motors adopts a successful new product development strategy which looks upon various alternatives that helps the company to be outstanding among the competitors. Tata Motors also takes in account the various factors like increased competition, the changing market conditions, rapid technological development and short product life cycles before developing new products.

New product development strategy of Tata Motors also helps the company introduce new products with latest technological advances. Along with the effective strategy of the company, Tata Motors also undergoes various collaborations with international companies and constantly improves its technology and process of innovation in order to gain competitive advantage (Griffin, 1997).

5.2 Measuring the performance of new products

Measuring the performance of new products helps to forecast the success of new product development strategy and customer satisfaction. Measuring the performance of new products introduced by the company also indicates the difficulty faced by the customers in using the products which helps the company to enhance its strategy in future. Measuring the performance of new products also helps the company to measure efficiency and success of Tata Motors (Blazey, 2009, pg. 342).

However, it can be critically argued that how to measure the performance of new products? According to Cooper, the performance of new products has a close relationship with the strategy of new product development adopted by the company (Cooper, 1984).

Tata motors’ new product development strategy is based on innovation and creativity. The company has formulated its strategy in such a way that it promptly introduces new products to be at the forefront amongst its competitors. The company also develops new products depending upon the needs of the customers. Hence, when Tata Motors introduces new products in the market it has an impact on the sales and revenues of the company. For this purpose, various monetary and non- monetary factors can be analysed as a means for measuring the performance of new products introduced by Tata Motors (Hart, 1993).

The performance of new models on the automobile giant is also evident from the past five year’s revenues of the company after introducing the new products.

In 2005-06 Tata Motors launched Tata Indigo and Indigo Marina, Tata Sumo which were recognised as the best selling vehicles. In this year the company’s domestic sales generated a growth rate of nearly 25 percent which can be observed as a big success achieved by Tata Motors. (MarketLine, 2010; Kazmi, 2008, pg. 562).

In 2007-08 the company launched Fiat Palio Stile, Tata Nano and a modified version of Tata Indigo with new features and latest technology. In this year the company’s domestic sales achieved a growth rate of 21 percent. The reason for the company’s positive growth rate was mainly dueto the company’s new products as it was observed that the sales of passenger car vehicles were declined by nearly 4 percent without developing new products (MarketLine, 2010).

However, in 2008-09, the sales in the domestic markets were declined by nearly 4.5 percent due to the global recession and hike in the fuel prices. The decline in the demand from customers also resulted a down turn in the automobile market. But, in spite of the decline in sales the company continued to develop new products.

Hence, it can be viewed that new products played a vital role in the success of the company in the last five years.

5.3 Impact of introducing new products on Tata Motors

In order to measure the overall impact of new products on the liquidity, turnover and profitability of Tata Motors, a detailed analyses and accounting approach has been adopted. Hence, for this purpose, some important liquidity ratios, profitability ratios and turnover ratios from the last five years figures (2004-2009) have been calculated from the company reports.

Earnings per share (EPS)

The importance of this ratio states that if the EPS ratio is high, then the performance of the company seems to be good. The EPS was highest in 2008 and least in 2009 among the five years. Hence, it can be analysed that as the company introduces new products every year the EPS ratio increases accordingly which in turn implies that the development of new products have an impact on the profits of the company.

Dividend per share

The importance of this ratio states the amount of profits which belong to the owners of Tata Motors. The highest dividends paid by the company in the five years were in 2007 and 2008. Hence, it can be analysed that the new products developed by Tata Motors has helped the company to attract more profits as customers opt to buy cars from Tata Motors instead of buying cars from other competitors (Prasad, 2009, pg.196)

Dividend pay-out ratio

The importance of this ratio states the earnings that are distributed among the owners of the company. From the year 2005 to 2008 the company has distributed feasible amount to the owners. However, in 2009 it has slightly declined. Hence it can be analysed that the earnings in 2009 are retained by the company as the company may need more funds into business for research and development and other functional areas for developing new products.

Gross Profit Margin:

The importance of this ratio states the profits on sales which can be earned by the company. Such ratio also helps to know the capability of Tata Motors as compared to its competitors. The gross profit margin ratio was highest in 2005 and lowest in 2009. Hence, it can be analysed that prior 2009, the introduction of new products helped Tata Motors to gain competitive advantage and earn higher profits. However, since 2009 the prices and profits of the company may be reduced because of the global economic downturn.

Net profit Margin:

The importance of this ratio states the correlation between the profits and sales of the company. The net profit margin ratio of Tata Motors was nearly 7 percent from 2005-2008 which has slightly reduced in 2009. Hence, it can be analysed that new product development plays a crucial role in the success and profitability of the company.

Inventory turnover ratio (times per year):

The significance of this ratio states the turnover of cars made by Tata Motors in a given period of time in relation to its sales. Inventory turnover ratio of Tata Motors was highest in 2008 and has almost maintained that level throughout. Hence, it can be examined that the company reacts quickly to the changing market conditions and develops new products at highly competitive prices which helps to increase the turnover of the company (Ferdows and Meyer, 1989).

Thus, new product development has a huge impact on the success and profitability of Tata Motors. However, analysing the ratios of the company may not be the only method to evaluate the impact of new products on the company. It can also be argued that developing new products may also not be the only reason for the revenues of the company to increase. But it cannot be denied that new product development is one of the important factors for the success and increased revenue of Tata Motors.

5.4 Success and limitations of new products introduced by Tata Motors

The literature review supports the argument that through innovation and applying new product development strategy, Tata Motors introduces new products. However, it can be analysed that there are certain success and limiting factors of different products that are launched by the company. Hence, the products launched by Tata Motors can be evaluated on the basis of two disparities: the success and drawbacks of new products introduced.

Tata Indica launched by Tata Motors was the biggest breakthrough for the company. It was the first passenger vehicle which attracted high sales volumes. Tata Indica’s performance has been recognised and appreciated all over the world.

But in 2008 Tata Motors launched Tata Indica V2 Xeta which is a modified version of Tata Indica. The new modified car was based on the latest technology of the company. It was designed with a dual fuel engine with petrol and liquid petroleum gas which reduces the polluting emissions from the cars. Innovation and research and development of Tata Motors have also helped the company to launch Tata Nano which is the world’s cheapest car in 2008. The company’s new product development strategy to develop a cost effective car seems to be successful as the Indian markets mainly comprises of middle class families which is affordable for such masses to buy the car. Hence, by introducing such a low price car Tata Motors gained competitive advantage and attraction from worldwide automobile companies.

However, there are some drawbacks which Tata Motors faces on the safety and quality standards of Tata Nano. For instance, the maximum speed of Tata Nano is only 105 km/hr. The car is also made of low class metal with plastic and the interior also are made up of low quality material. The standards for emission control are also not being fulfilled by the car. (Winter, 2009).

It can also be recommended from the findings that, though developing new products and being first in the market to develop new products helps Tata Motors to gain competitive advantage but it is necessary for company to develop high quality product rather than a low quality one. For instance Tata Nano, which seems to have not fulfilled the safety and quality standard criteria. This is because the bad experience with the low quality product may have a significant impact on customers in the long run which may affect the brand of Tata Motors. Hence, Tata Motors should not strive for being first to introduce a new product in the market but the company should develop high quality product and be the first to market (Mital etal., 2008, pg.24).

5.5 the role of new product development strategy in the success of Tata Motors

The strategy adopted by the company to develop new products to innovate latest technology products has been an important reason for the company to be successful. The demand for Tata Motors has also increased because of its promptness in developing new products. Innovation and new products of the company has also helped the company to build a grand brand image and customer loyalty. New product development and innovation has also helped Tata Motors to reach to the new heights. As Tata Motors launches products as per the customer expectation, it helps the company to build customer loyalty which can be considered to be the biggest strength of the company. The company’s spending on innovation and research and development to build Tata Nano and acquire Jaguar and Land Rover seems to be the biggest achievements for Tata Motors.

The cheapest car developed in 2008 by Tata Motors has also given huge success and global attraction to the company. Developing such a low cost car, the company has also received attention from the global competitors who also pursue the same strategy used by Tata Motors. Hence, many car manufacturing companies both in the domestic as well as international markets strive hard to cope with the competition presented by Tata Motors.

The location where Tata Motors operates i.e. India has also helped the company to a great extent in reducing the costs. The location India serves the company with some of the best resources. Talented but cheap labour, the large market size, latest and generally advanced technology and low cost of input has helped the company to smoothly undergo its research and development and production activities. The emerging automobile market in India also provides very important base for Tata Motors to compete internationally (Das, 2007).

The company also acquired Jaguar and Land Rover from Ford in 2008. But due to the global economic downturn and hike in the prices of fuel along with less consumer demand, the sale of Tata Motors were affected because of which the sales and profits of the company came down. The volumes of cars after acquisition were reduced by nearly 30 percent and the company even suffered losses of nearly £250m. However, the company’s new product development strategy of introducing new cars through constant innovation and research and development helped the company to enhance its brand. This can be evident from the new car developed by the company Jaguar XJ and Jaguar XF launched in 2008 which perceived a higher customer response.

Over the past few years Tata Motors has been mainly concentrating on developing new products which is also evident from the new products like Tata Nano, Tata and Jaguar XJ launched by the company in 2008. Such introductions of new brands will definitely add-on certain weight on the success of the company. Such important inventions and innovation will make Tata Motors a leader in the automobile industry.