MKTG2002 Marketing Across Borders Exam Case Study (3 Pages)

Case 11-1 Global Automakers Target Low-Income Consumers In the 1950s and 1960s, the “space race” pitted the Soviet Union against the United States in an effort to explore outer space. Half a century later, the International Space Station is a collaborative effort involving Russia, the United States, and other nations. Meanwhile, a new “race” is under way— one that is much more “down to earth” and does not involve superpowers in different hemispheres jostling for geopolitical advantage. Rather, this twenty-first-century competition involves efforts by leading automakers in Asia, Europe, and the United States to create inexpensive cars that can be sold in huge volumes to consumers in India and other developing countries. Renault, the French automotive group, was a pioneer in the low-price segment, with its Logan model: since it was first launched in 2004, more than 4 million units have been sold (see Exhibit 11-1). Initially, the Logan was produced at a single plant operated by Renault’s Dacia affiliate in Romania. As Dacia chairman Luc-Alexandre Ménard explained, “At the time, we weren’t too sure of what we would do with this car. It was meant to be a one-off, a Trojan horse to penetrate new markets in developing countries.” Today, Logans are manufactured in several locations, including Iran, India, and Brazil; the cars are available for sale in dozens of countries. Two other automakers have joined the race to bring low-cost cars to the emerging-market masses. In 2009, India’s Tata Motors launched the Nano, a radical new design with a rock-bottom sticker price of 1 lakh (equivalent to 100,000 rupees, or $2,500). The Nano has a rear-mounted, 2-cylinder engine that delivers 33 horsepower. The top speed is 60 miles per hour, and it delivers 50 miles per gallon of gas. Nissan revived the venerable Datsun nameplate in 2014 with the launch of the $6,400 Go hatchback. Like the Nano, the new Datsun’s powertrain features a 2-cylinder engine mated to a manual transmission. Unlike the Nano, which has no air bags, Datsuns are available with a driver’s-side air bag. Although sales have yet to meet expectations, the social media response to the relaunched Datsun in India has been overwhelmingly positive: On Facebook, @datsunindia has more than half a million “likes” and followers.

(Source: Green, Mark, and Keegan, Warren. 2019. Global Marketing, Global Edition. Harlow: Pearson Education, Limited, p358)

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The Logan is a case study in driving down costs. Drivers turn on the ignition with an “old-fashioned,” manual key; there is no cruise control. The windshield glass is nearly flat, which makes it less expensive to produce. The left and right outside mirrors are identical; the ashtrays are exactly the same as the ones used in another Renault model, the Espace. Similarly, Logan shares an engine and gearbox with Renault’s Clio subcompact. For these and other components, high manufacturing volumes translate into economies of scale. Production of the first Logan models began in Romania in 2004. The choice of an assembly site was dictated by simple economics: France’s high labor rates and payroll taxes would have translated into an additional €1,000 ($1,400) cost per vehicle. The Logan was launched in India in April 2007 with a sticker price of about $10,000; the vehicle was manufactured by a joint venture between Renault and Mahindra & Mahindra (M&M), one of India’s best-known industrial conglomerates. After a dispute between the partners, the joint venture was dissolved. Mahindra & Mahindra now produces Logans under a licensing agreement. In 2008 a hatchback model, the Sandero, was introduced. It was followed in 2009 by the Duster sport-utility vehicle; the Lodgy debuted in 2012. In 2012, Renault sold a record 2.55 million vehicles, 25 percent of which were low-cost models. Sales were split roughly evenly between the Logan and entry-level Renault models. As it turned out, the geographic distribution of sales indicated that Renault’s strategy was in trouble: Although the Logan was targeted at emerging markets, it was a big hit with consumers in affluent European countries. How did this happen? Enterprising independent distributors bought Logans that were manufactured in Romania and exported them to France and other countries in Western Europe. This coincided with a shift in consumer attitudes; in light of the financial crisis happening at the time, it was not surprising that many young Europeans were of the opinion that cutting back on spending was a sensible thing to do. Indeed, surveys showed that a high proportion of twentysomething Europeans were “interested” or “very interested” in buying a low-cost car. Nano Even as Renault continued to refine its low-cost-car strategy, some in the industry were asking a tantalizing question: Could the auto companies come up with the optimal value proposition—small, no-frills, four-door cars that are safe to drive, stylish enough to appeal to the aspirations of first-time buyers, and yet sell for half the price of a Logan (or less)? Under the best of circumstances, creating such a vehicle would test the prowess of the world’s best automotive engineers. The challenge was even more daunting in a business environment characterized by record prices for steel, resin, and other commodities and components. As the general manager for a sourcing and procuring company noted, “There are so many legacy costs built into a design, and trying to engineer those out is difficult. It’s better to start with a clean sheet of paper and engineer low costs in.” Top executives at India’s Tata Motors believed their company was up to the task, and the Nano is the evidence. The Nano’s instrument panel is clustered in the middle of the dashboard so that Tata can offer both right- and left-hand-drive versions for export. Tata’s target market is consumers in emerging markets who currently travel by scooter. Some environmentalists have warned about the negative impact of hundreds of thousands of new vehicles on India’s already congested roads. Chairman Ratan Tata asserts that low-income families should be given access to the freedom that a car provides: “Should they be denied the right to independent transport?” he asks. After an initial flurry of industry interest and positive press, the Nano program fell victim to bad luck and changing attitudes. For one thing, protesters objected to the location of the first assembly plant. After production finally began, there were several well-publicized incidents in which the cars caught fire. Many car buyers shopped the competition; one best-selling model was the $6,200 Maruti Suzuki Alto. It seemed that the market had spoken: Very few people wanted to be seen driving “the world’s cheapest car.” As Hormazd Sorabjee, editor of India Autoweek, noted, “The bottom of the pyramid continues to be where the action is, but the aspirations of people are moving up. People want to jump into something more substantial.” Industry analysts Arya Sen had a similar assessment. “Cars in India are aspirational, but this was positioned as a cheap product,” he said. (Source: Green, Mark, and Keegan, Warren. 2019. Global Marketing, Global Edition. Harlow: Pearson Education, Limited, p.385)

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Datsun Tata Motors’ announcement about the Nano galvanized Carlos Ghosn, Nissan’s chief executive. Nissan’s Datsun relaunch had Ghosn’s full support: He was born in Brazil and didn’t own a car until his late teens. To Ghosn, Datsun represented more than a business strategy or business model. Much more, in fact: It was a life mission, a make-or break, billion-dollar decision that would determine his legacy and his reputation. In 2007, Ghosn convened a cadre of company executives known as the Nissan Exploratory Team and dispatched members to India to study what consumers there sought in a car. Industry observers noted that the Datsun nameplate was very popular in the United States in the 1960s and 1970s. In 1981, executives decided to unify the two brands, so Datsun became Nissan. The result: Much confusion among consumers and a gradual erosion of Nissan’s market position in the United States. The move is widely regarded as one of the worst decisions in the history of the automobile business. In 2012, Yukitoshi Funo, an executive vice president at rival Toyota Motor Corporation, expressed doubts about Datsun’s prospects: “It’s a big mistake to think you can introduce a cheap car in emerging markets and be successful. People want a car they and their families can be proud of.” His remarks proved to be prescient. When Datsun launched in India in March 2013, Ghosn predicted that Datsun and Nissan would have a combined 10 percent market share in India by 2016. As it turned out, sales were below expectations. One issue was low brand recognition for both Nissan and Datsun. Also, only a few Datsun dealerships were opened, so Nissan dealers were recruited to carry the Datsun line. Consumers appeared to view Datsun as simply a stripped-down Nissan. (Source: Green, Mark, and Keegan, Warren. 2019. Global Marketing, Global Edition. Harlow: Pearson Education, Limited, p.386)

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