Tata Nano: Setting itself, but not the markets, alight

Tata Nano, the cheapest car in the world, was supposed to take the world by storm but it has not lived up to the expectations because of a plethora of reasons. In this article, I would try to conduct an autopsy to unearth the reasons behind the failure and possible solutions.

Tata Group: A brief outlook

Before we get further with the analysis of Tata Nano, I will describe Tata group because it is very important to know its policies and its culture for understanding the rationale behind the launch of the “wonder car”. Tata group is an Indian multinational conglomerate that has presence in energy, services, engineering, consumer products, chemicals, etc. It was founded in the year 1868 by Jamsetji Tata, a cotton dealer, who turned his start up into one of the most prestigious organisations in the world. Last year Finance Global 500, a ranking of the most valuable organisations in the world, estimated that the Tata group is worth $ 11.2 billion placing it in the first position in India and 65th position wordwide

Tata Group prides itself on its culture, which is driven by loyalty, dignity and what is now commonly called corporate social responsibility. It is a common practice to find a life peer, whose spouse works for the firm and whose father and grandfather also did. Tata group has always renounced unsavoury industries such as tobacco, alcohol and gambling and has always remained committed to the public service as it was when Jamsetji Tata was laying the economic foundations of India’s independence. Tata’s culture of probity and candour acts as a bulwark against India’s endemic corruption. When it founded financial irregularities in Tata finance in 2001-02, it “blew the whistle” on itself.

The group has always been known for providing innovative solutions to problems at affordable rates. The group is pursuing innovation at two levels, at the high end it is investing its resources on the Nano technology and food science and at the lower end it has mastered the art of “Frugal Innovation”, a method of catering to the needs and wants of the people at the BOP. Its branch, TCS (Tata consulting services) has conjured up with a cheap water filter “The Swach” using rice husks to expunge all dirt and impurities from the water without using electricity. It is priced at Rs.890 ($ 18) and has been awarded the Asian Innovation award in 2010.  Mr. Ratan Tata, CEO of the group talks about the responsibility to produce ground breaking products for the world’s poor with a missionary zeal. To encapsulate the last two paragraphs, Tata group is a philanthropist group, which gives 65% of its profits to charity and directs its efforts for the upheaval of the society.

Tata Nano: The 8th wonder of the world

Tata Motors, the company responsible for manufacturing and selling Tata Nano, falls under the Tata group umbrella. It is the largest automobile company in India and the proud owner of the esteemed brands Jaguar and Land Rover, which it bought for $2.3 billion dollars in 2008. Tata Nano, the modern people’s car, came into existence as a result of Mr. Ratan Tata’s vision. In the late 1990’s, he saw a typical 4 member Indian family travelling on a two wheeler with mother sitting on the back seat and precariously clinging onto the two kids and decided to develop a car to allow middle class families to swap their overloaded two wheelers for the comfort and safety of a compact, air-conditioned car. Tata Motors began designing the car in 2003 and after a painful gestation period was able to launch the car in 2008 Auto Expo in New Delhi, India. The car is not only the means of providing luxury to millions of poor Indians but also the symbol of India’s ambitions to become a modern nation.

The table below shows the sales of Tata Nano in 2010 and first three quarters of 2011:

Source: Tata Motors website

Maruti Suzuki, Tata’s biggest competitor, sales numbers of a particular model:

Source: Maruti Suzuki Website

Contemplate the numbers above, the sales have been volatile and nowhere close to the expectations of the company if you consider that the plant, based in Sanand, has a capacity to produce 250,000 cars every year. Besides, its biggest competitor Maruti Suzuki has been able to sell more than 48,000 cars, on average, in three different variants every month. Surprisingly, the cost of the cheapest Maruti Suzuki Alto starts at $ 6200 and is the best seller in the Indian market. The numbers are quite bewildering in a price sensitive market, where 42% Indians still live below the poverty line.

The enigma of Tata Nano: An Explanation

Tata Nano has been marred with one controversy after another since its inception. Originally, the plan was to manufacture the car in Singur, a city in the north-eastern state of Bengal, but due to the opposition to the site of production by the local farmers, company had to shift the production to Sanand, a city on the western coast of India. The delay in production and the rising LME (London Metal exchange) led to increase in prices by almost 15% and when the company had volumes the demand for the car petered out to compound its problems. Furthermore, low sales of the car have been a result of a catastrophic marketing strategy followed by the company. The irony is that the car never reached the intended target audience due to a lack of distribution and advertising efforts. In many rural regions, where communication is possible, there is no effective system of finance in place.  In addition, a few cars caught fire and the mishandling of these failures also cost the company quite dearly. Without basic financial infrastructure and media communication, the product was doomed to failure.

Possible Solutions

Firstly, the positioning of the product is wrong. By emphasising its cheapness rather than its simple, basic and appealing features, the company has scared away many upper middle class families who could afford it but aspire to buy sophisticated vehicles. Besides, the two wheeler market is quite prominent in metropolitan cities with much better infrastructure and purchasing power. The price of top end motorcycle models (A big hit among the teens) start from Rs.70, 000 ($ 1400) and it will be much better if Tata Motors can position Nano better and target motor bike riders by explaining them the advantages accrued from using a car over the bike at little extra cost.

Secondly, the message has to reach target consumers and the company would have to adopt aggressive consumer enlightment policy through extensive advertisement campaigns, especially in rural markets, to quickly pass the five phases of the adoption theory. In addition, it has to develop and simplify the financial infrastructure (Partnership with banks, etc) to make sure the first time buyers with no regular employment and payslips to back an application for credit have money whenever they need it.

Lastly, the recession has created an unforeseen situation where there is a demand for small, fuel efficient cars even in the developed world. Tata Motors already exports Tata Nano but mostly to Asian countries such as Taiwan. It is, however, about time that it ventures into the European, US markets and together with a well defined marketing mix elements and positioning succeed in stimulating demand for it.

Tata Nano is a brilliant concept and whosoever drives it loves the driving experience. That said, until the company reinvents the business model by embracing the strategies mentioned above or any other prudent strategy, Tata Nano will always be a riddle wrapped up in an enigma. I like Tata Nano quite a lot and I am hopeful that Tata Motors will see the conspicuous and turn it into a global star it deserves to be.

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