It is common wisdom that India is a very large market for goods and services?with a population of over a billion and a trillion-dollar economy, that seems obvious. What is less obvious is that while it is a very large market, in its characteristics it is quite different from many other very large markets. That poses a unique challenge to producers of goods and services who cannot easily replicate models from elsewhere to sell in the Indian market. One of the key features of the Indian marketplace is the extreme sensitivity to price that most consumers have?this is a function of the still limited incomes that a majority of people earn. So, it?s not surprising that cheap products have a mass appeal. What has changed over the last two decades is that while consumers want cheap products, they are also sensitive to quality, particularly in functional terms (and not necessarily in style, design or fashion). A number of entrepreneurs have slowly begun to grasp this reality and respond to it aggressively. And it is in this context that the launch of the Tata Nano must be viewed.

It is the first product in the automobile segment that will provide affordability and quality at the same time, and will, in fact, create a completely new market for itself. Today?s columnist lucidly explains this and other features of very successful low-cost products that have made a big dent in the Indian market. The mobile phone, in a different consumer segment, is the obvious predecessor to Tata?s audaciously cheap Nano. The mobile revolution of the 2000s has now dwarfed the very successful ISD-STD booth revolution of the 1980s. Consider also the launch of low-cost airlines, which, despite their struggles of today, have made flying affordable to a lot more people and had also developed a viable business model until this crisis struck. Low cost did not necessarily mean a compromise on quality?many budget carriers report better punctuality than regular carriers. The interesting question now is, how the economic slowdown will affect the future of low-cost products. At one level, low-cost products are ideal for consumers suffering from loss of income or greater uncertainty in a slowdown. Yet, at the same time, the profit margins of producers are put under pressure. How long can the Nano be sold at Rs 1 lakh is a question not dissimilar to how low airline fares can remain. Difficult, but nothing that some clever entrepreneurship and strategy cannot solve.