Essay \"The Tata Nano: What Went Wrong?\" PDF

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THE TATA NANO: WHAT WENT WRONG?...

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THE TATA NANO: WHAT WENT WRONG? Wenli Tan (101017992) Introduction Unveiled by Tata Motors in January 2008, the Tata Nano is the lowest priced car in the world, which sells for US$2,500. Though Tata Nano was predicted to expand the Indian car market by 65%, the final demand for the Nano was low and the production capabilities of Tata Motors was vastly underestimated. After failing to realize its first target towards two-wheeler owners who had a family and a low income, Tata Motors repositioned the car as a smart city car aimed at the smart city buyer with the Nano Twist, which was greatly improved on the basis of the Tata Nano. However, sales of the Nano Twist deteriorated and the consolidated sales of both products never met the target. To solve these problems and make the Tata Nano again a “wonder car”, we can reserve the “Nano” brand and reposition it as logical upgrade for a family of four with two-wheelers.

Situation Analysis SWOT Analysis In order to know whether a product is suitable for an industry, the first thing we need to do is to analyze the strengths, weaknesses, opportunities and threats (SWOT) of it. As the Tata Nano has a price tag of US$2,500, it is cheap enough to be considered to be an alternative to two-wheelers and people who plan to buy a used car. It is an all-weather transportation. It has the fuel efficiency of 25 kilometres per litre, which is the best in the lowcost car segment. In addition, the improved vision of the Tata Nano, the Nano Twist, has a variety of vibrant colours and sets of accessories, which can add aesthetic value and make the

Tata Nano stand out among small cars. And the height and width can give passengers more space. These are all the strengths of the Tata Nano that can attract consumers. The weaknesses of the Tata Nano also results from its low cost. As lacking all the unnecessary “luxuries”, the Tata Nano has limited features. Equipped with an engine involving two cylinders with a 624 cubic centimetre capacity that provides a massive maximum speed of 105 km/h, fuel tank capacity of only 15 litres, and the wheel bearings strong enough to handle speeds up to 45 miles per hour, the Tata Nano’s overall build was perceived to be flimsy and it has poor highway performance compared to other low-cost cars like the Maruti Alto. The move of the production plant from Singur to Sanand led to the delay of production and deliver, which severely harmed the reputation and image of Tata Motors. Its inability to fit into tiny gaps on India’s chaotic streets lead to its inconvenience compared to two-wheelers. In addition, its safety and quality issues also frighten some of the consumers and prevent people from buying it. The market is absolutely the largest opportunity the Tata Nano is facing with, both domestic and global. As only 8.5% of people in India owned a car at that time, there was a lucrative market for such a vehicle on the condition that the middle class in India will grow by 10 times from about 50 million in 2007 to 583 million in 2025. In addition, as the launch of the Tata Nano received global attention, it can also attract consumers abroad. On the contrary of the opportunities, the threats the Tata Nano encounters are the rivals in the same and different segments of the automotive industry. Moreover, with the increase of the cost of raw materials, it is impossible for Tata Motors to fix the price to US$2,500 without any change. Also, as the limited space in India, the government may increase taxes in metros and reduce the parking space, which adds the cost of purchasing the vehicle and makes it

inconvenient to own the vehicle. Last but not least, the sale of the vehicle largely influenced by the fuel prices. Competitor Analysis There is a famous saying goes that “To know the enemy and know yourself, and you can fight a hundred battles with no danger of defeat”, which means that as long as you know the situation of both your competitors and yourself, you can win the campaign. Therefore, after we have the basic analysis of the strengths, weaknesses, opportunities and threats of the Tata Nano, we also need to know about our competitors. The first competition comes from the used-car market. After the launch of the Nano in 2009, dealers were offering used Ford Ikons, Maruti Esteems and Opel Corsas either at the same price as the Nano or cheaper by slashing the prices by 35% to match the price of the Nano. The used-car market in India was five times larger than the new car market, which imposes threats to Tata Nano. The second competition refers to the two-wheeler manufacturers, which were forced to reduce their prices by 20% so as to retain their market share. Two-wheeler segment has the feature of low price, fuel efficiency, easy maneuverability and low maintenance cost compared to the Tata Nano, which may make the consumers stick to this alternative. The third competition happens between the Tata Nano and its nearest competitor—the Maruti Alto 800, India’s first low-cost car launched in 1983. Though owning rear-view mirrors and remote central locking, which were absent in the Maruti Alto 800, the latter has better fueltank capacity, engine efficiency, top achievable speed, suspension system and brake system, which provides the customers with a better overall driving experience.

The fourth competition has something to do with the consumer behaviors. Consumers tend to value more quality to money. That is to say, if the slightly more cost can provide them better engine, safety features and more space, they will prefer the more expensive option. As a result, consumers find better value for money with the Alto or Eon compared to the Nano because of better product attributes. Industry Analysis After finishing the SWOT analysis of Tata Nano and its competitors, we should focus on the development of the industry that we are going to enter. As the second fastest growing automobile market in the world after China, India has witnessed an increase in the sales of automobile from 2008. From Automobile Domestic Sales Trends in India (see Exhibit 1) we can see that from 2009 to 2015, the total sales of automobile in India has increased by more than 60% from 1,22,95,397 to 1,97,52,580. Among the market, the passenger vehicles, in which the Tata Nano is classified, occupied more than 15% of the total market in 2009 and ranked just below the two-wheeler category, which accounted for more than 75%. The data indicates the necessity of the passenger vehicles in Indian automobile market and the business opportunity of the Tata Nano.

Evaluation of Alternatives There are two options for Tata Motors to deal with the situation of the Tata Nano: ceasing the production of the Nano and using the plant to manufacture other sedans or repositioning the Nano and promoting it. Taking into consideration the analysis of SWOT, competitors and the automotive industry in India, we believe the latter alternative to be better. Because the Tata Nano is in fact a great product. However, the flawed positioning and unprecedented hype in the media

ruined its sales. So long as we find the right way of positioning and promotion, we can make the Tata Nano wonderful again. Then we come to plan the market strategy. The market strategy should be planned upon the process of segmentation, differentiation and positioning. For the Tata Nano, we can segment the market by geography and demography. For geographic segmentation, we have the option of rural, urban and smaller cities in which live all residents. While the Tata Nano suits cities of all scales because of its convenience, the position strategy should differ each other depend on different economy scale each city has. In terms of demographic segmentation, we can further divide it into age, family size and income. As the Tata Nano is called a great example of disruptive innovation and 20% of the 80% first-time buyers are in the age group of 25 to 40. That is to say, the Tata Nano attracts more young people. As a result, our focus should be put on the young. For family size, we consider generally the families of four to five members prefer to purchase the Tata Nano because it is safer than the two-wheelers and all the family members can enjoy sitting in the car. As the cheapest car in the world, the Tata Nano definitely concentrates on those who have low or middle class income. In addition, the Tato Nano also attracts the small car buyers who intend to buy the Maruti Alto 800. To sum up, we will finally target our market strategy mainly on those young people who already have two-wheelers with low or middle class income. The Decision: Marketing Objectives/Target Market/Positioning Target: Young people who already have two-wheelers with low or middle-class income Positioning: Cheap/Innovative/Intended for the masses

Marketing Objectives: 1. The Tata Nano should take special steps to attract customers who intend to buy twowheelers by emphasizing the safety and all-weather advantage, thus increasing the sale. 2. Using some social media - i.e., television, newspaper, radio - to clarify the advantages of the vehicle – i.e., 86 patents – and its limitations, eliminating the stereotype consumers may have. 3. Enhancing the “Nano” brand awareness level and classify the three different types of products.

Marketing Mix Product Tata Nano has achieved its low price by minimizing costs on unnecessary “luxuries”, without a stereo, an air conditioner, power windows, airbags, antilock brakes, power steering, remote locking, or a glove compartment. The vehicle has a body made of biodegradable plastic instead of steel and an engine involving two cylinders with a 624 cubic centimetre capacity that provides a massive maximum speed of 105 km/h. Yet with a length of 3.1 meters, width of 1.5 meters and the ground clearance of 18 centimeters, it can effortlessly manoeuvre on busy roads in cities as well as in rural areas. The variety of vibrant colours and the added sets of accessories of the improved vision, the Nano Twist, can add aesthetic value and make the Tata Nano stand out among small cars. In addition, it had best fuel efficiency in the low-cost car segment and low dioxide emissions that is considered to be environmentally friendly, which may attract some environmental enthusiasts.

However, in order to win the trust of the consumers, it should enhance its quality. Even it may results a higher cost, nobody is willing to pay for an unsafe vehicle. In terms of branding, we can reserve the name of “Nano” and classify the three different types as the “Nano Standard”, the “Nano Updated” and the “Nano Luxury” and position and target them to different consumers regarding their income. For example, we can target the Nano Standard to people with low income, Nano Updated to people with middle-class income and Nano Luxury to people with high income. Price Assume that the new Tata Nano sells for US$3,600 each. The total cost is 6,000,000 and the variable cost for unit Tata Nano is 1819.06. From the break even analysis we can see that 3369 unit or US$12,128,400 will be required in monthly sales revenue to reach the break even point. Table: Break Even Analysis Break even analysis: Monthly unit break even Monthly sales break even Monthly unit production Average per unit revenue Average per unit variable cost Average per unit fixed cost Estimated monthly fixed cost

3369 12,128,400 6083 600 1819.06 2630.28 6,000,000

Distribution In addition to the collaboration with the value retailer Big Bazaar to distribute the vehicle, and opening showrooms to monitor the number of customers, it is a good way for Tata Motors to leverage acquisitions and joint ventures to win markets outside of India.

Take South Africa as an example. Through a joint venture with Tata Africa Holdings Ltd, Tata Motors can develop a South African assembly plant for light, medium, and heavy commercial vehicles, thus creating a lucrative export market. In addition, with the launch of the Tata Nano, a lot of European companies which specializes in developing solutions for electric vehicles have shown an interest in an electric version of the Nano. Investing in these companies can help Tata Motors realize its strategy to develop convenient, affordable, and sustainable mobility solutions through electric and hybrid vehicles. Also, it is useful to set up exclusive showrooms overseas. By these approaches, Tata Motors can increase not only its sales but also its brand awareness level. Promotion While social media has both positive and negative influences on the promotion of the Tata Nano, we should not give up this approach of promotion. For online advertisements, on the web site – www.tatanano.com, there are photo categories and videos to provide customers with the information and special features of the Tata Nano. Besides, there are recent news about the vehicle, space for public feedback. Also, there are blogs that bring together people with common interests for Tata Motors to find out people’s mind especially the potential customers. To lower the advertising budget, we just choose the prime time (7 pm - 11 pm) to perform the Tato Nano to the public rather than placing the commercial in whole day. While for the radio advertisement, we can put it all day long because it is a cheap and pervasive medium to create the brand awareness by repeating the advertisement and the brand name. With the newspaper, the Tata Nano can get the broad acceptance and good reputation.

In addition to the traditional way of ordering the vehicle, Tata Motors can consider to add the online channel for consumers to get the vehicle conveniently by clicking the mouse. With the development of science and technology, more and more people around the world tend to have the preference of purchasing online. Such an innovative channel will also help Tata Motors gain some market shares. Last but not least, Tata Motors can sign long-term contracts with taxi fleet service providers. In this way, it can attract not only domestic but also foreign travellers, which can work as a perfect way of advertising.

Expected Outcomes With analysis of the situations of Tata Nano, its competitors and the Indian automobile industry, it is possible for Tata Nano to enhance its revenues and raise its brand awareness level as long as it uses the right market strategy to the targeted consumers and positions its features of cheapness, innovation and intention for the masses. In addition, it should enhance its quality to assure its safety even though it may results in a higher cost.

Appendix

Exhibit 1 Automobile Domestic Sales Trends in India (siamindia.com, 2016)...