Have been thinking about the One-lakh rupee car for a while now. For starters, let's just call it 'Tata One'. There's a huge amount of buzz around the launch at the Auto Expo, but I'm saying nothing new. Yet.

Back at the magazines, there was talk about a new distribution paradigm that Tata Motors was trying to achieve with the One. I wasn't an MBA then, and my knowledge about these things was extremely limited. Right, now that I almost am one, let me spew some jargon.

Traditionally, in the Indian automotive industry, the role of the channel has been fairly limited. Two primary functions: one, geographical reach; and two, inventory holding. Essentially, what dealerships do is allow the manufacturer to 'reach' a bigger geographic region cost effectively; and buy, store and sell cars bought from the manufacturer to share risk. There are secondary functions, but well, they're secondary.

There are two very obvious pitfalls. One, the manufacturer is now at least one level away from its customers. That impacts customer experience - positively or otherwise, distorts customer feedback, and shaves off manufacturer margins. Two, the very real problem of a channel conflict. In the automotive industry, channel conflicts seem to be fairly straightforward in nature - two or more dealers vying for the same set of customers. Sorting out channel conflicts, however, is anything but straightforward.

So the benefit(s) are in one paragraph, and the cost(s) are in the next. Clearly, the objective is to maximize benefits while reducing costs to an absolute minimum.

Here's what I think about how distribution strategies can be played around with.

1. The manufacturer enters into a strategic alliance with a limited number of channel partners. Say 12 on an all-India basis.

2. These 12 channel partners invest a significant amount of resources (land, labour, capital) into the venture. What comes out of the investment is a sophisticated mini manufacturing facility - 12 in total, across the country.

3. The manufacturer has a main manufacturing facility (say Singur for the Tata One) from where it ships standardized, 'base version' vehicles to each of the 12 'satellite' manufacturing locations.

4. Each of the 12 locations has the capability (at its 'mini manufacturing facility') to build on the standardized version shipped to it, and create part-customized models as per its own business strategy and objectives.

5. Effectively, what we have done is that we've split the monolithic manufacturer into one main manufacturer and 12 satellite companies, each with its own capabilities. Each of those 12 are now proper 'companies' - they have business objectives, strategies to meet those objectives, a marketing department to study the market and make recommendations on how to serve the most lucrative segment profitably and an operations department to implement those recommendations efficiently.

The advantages I see:

1. Channel conflict is minimized. Each of the 12 'companies' is free to segment the market as per its capabilities, evaluate segments and single out group(s) of customers that it is going to 'target'. The company that does this in the most innovative manner is likely to avoid channel conflict by carving out its place in the market. From the manufacturer's perspective, the 12 companies constantly strive to push the innovation frontier; irrespective of who amongst those wins, the manufacturer wins.

2. Risk sharing is now significantly deeper. In a way, the manufacturer has got quite a few things off its back. One, it does not have to study the entire market in great detail (or understand varying nuances in varied parts of the country) - someone else does it for the manufacturer. Two, in terms of manufacturing, the manufacturer is now churning out a standardized version of the car from its facility, the channel partners share a part of the manufacturing workload. Three, the understanding of local sub-markets is richer and deeper, and the capability of serving the variations profitably is significantly enhanced. Four, the distribution strategy seems inherently conducive to mass customizations.

The biggest disadvantage I can see is that all this is a huge investment. For a car like the Tata One, where volumes are more or less assured, the investment might be justified. But for a more risky model, where success probabilities are lower, I'm not sure one can justify the hassle. The knee-jerk workaround is that one scale this up for multiple models from the same manufacturer, and hence share risks across models. But that's easier said than done.

Secondly, I am not sure manufacturers want to let go of the control - especially on the marketing and distribution front. It's a toss-up between looking at these aspects as 'overheads' or as 'crucial cogs of the business'. The workaround I can see is that the manufacturer picks up an equity stake in each of the 12 channel partners. That way, the manufacturer retains control - perhaps indirectly - and yet ensures that its own overheads are pared. Again, easier said than done.

Rediff says this in a story on the Tata One.

...it [Tata One] will be produced differently, using dealers as a part of a distributive manufacturing network.
All this is a little like a father adopting 12 young sons, teaching them the business, setting up 12 factories, and then letting them compete with each other fair and square. Irrespective of whether number 1 wins or number 12, the father wins in any case.

Miserable analogies are known to destroy a fat lot. Nevertheless.