Creating segments along the way

Usually a company introduces a new product in one of the target market segments. In not-so-common cases the new product creates a new segment altogether, mainly due to technological breakthrough achieved. But it is surely rare that new market segment is created twice in a row in the same industry that too by the same company.

I am referring to Tata motors.

Until Nano the lowest segment in 4 wheeler market was the ‘low end hatchback’. Much has already been talked about Nano and how it has created a sub ‘Maruti 800’ market segment. Less popular though is Tata motors vouch to shake up the sedan segment.

Budget 2006 brought in separate excise duty for small cars, 16% instead of usual 24%, which has been further brought down to 12% in this budget. The classification of a vehicle as small car is determined by the length of the car being lower than 4 metres (and also engine capacity upto 1200cc for petrol and 1500cc for diesel). By smartly modifying Indigo (entry level sedan of Tata motors) Tata motors got its length to 3.95 metres making it eligible to claim the excise rebate. The new car is called Indigo CS (compact sedan) & will be priced starting at a coooool 3.79 L. The price is set to target potential high end small car buyers. What Nano has done for small car segment, Indigo CS plans to do for the sedan segment. Also note that CS has created a new segment without any major technological breakthrough.

Indigo CS has one more key advantage. Indica, Indigo and Marina all have the same engine. The tooling and R&D cost of engine can be recovered from the volume sales of Indica. Hence Tata is in position to price CS aggressively to keep competitors at bay. Competitors also may come up with ‘sedanese’ versions of their hatchbacks. Although unlikely, they may also pressurise government to make the excise rule more stringent so that CS cannot be claimed as small car.

Whatever happens, the vacant space between high end hatchback and low end sedan will definitely see lot of hot action.