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A Dream Shattered or Still a Big Potential Essay

A DREAM SHATTERED OR STILL A BIG POTENTIAL: A CASE STUDY OF TATA NANO Abstract Keeping the potential of Indian Automobile Industry in mind, a few years back, around 2006 Ratan Tata conceived the idea of a tiny car with even a tinier price tag for rapidly growing middle class segment. Tata Nano was seen as a triumph of home grown engineering ; as making a product which encapsulates the dreams of millions of Indians with all the elements of mix i.e. safety, engineering, design, efficiency, style at a price tag of one lakh was in itself a challenge. The intense media scrutiny about the few cases of Nano catching fire brought a remarkable dent in Nano sales and shattered the customers’ confidence in car. Since then Nano is struggling hard to regain its strong image in the eyes of its customers as still the huge potential of middle segment is unexplored.

The discussion arises about the turnaround strategies of Nano keeping in view its initial launch success, a few quality failures and distorted perceptions in the minds of its customers. This discussion will further add to the design of strategies for future new products which are well strategized for success with clear and defined conceivable about the costs, and market segments but fail due to a few small but significant mistakes.

Keywords: Product Development,, USP (unique selling preposition), Buzz marketing, Communication Complacency, Strategic Repositioning, Resurrection.

*This case study is developed during the resurrection phase of Tata Nano in March 2012 for classroom discussion as a perfect illustration for analyzing various aspects in the launch of an innovative product,,its market acceptance , Changing people perceptions etc.

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

Introduction

Just a few months back, India overtook Brazil as the sixth largest passenger vehicle manufacturer in the world (Wikipedia Automobile industry). This proves the fact that the Indian Automobile Industry is moving at a fast pace. India is a growing market for Hatchbacks, Sedans, SUVs MUVs, Crossovers and MPVs. Among these small cars have emerged as a clear winner. In fact the country has become a leading centre in producing small cars. Keeping this potential of Indian Automobile Industry in mind , a few years back, around 2006 Ratan Tata conceived the idea of a tiny car with even a tinier price tag for rapidly growing middle class segment. Tata Nano achieved instant success when it was introduced as world’s cheapest car in the year 2009.

Tata Nano was seen as a triumph of home grown engineering ; as making a product which encapsulates the dreams of millions of Indians with all the elements of mix i.e. safety, engineering, design, efficiency, style at a price tag of one lakh was in itself a challenge. And Tata’s seemed to fulfill all the promises to its customers by offering Nano. Majority of Indian population belong to middle class, when it comes to purchasing cars they look for the affordable vehicles. Few studies related to consumer buying behavior show that if an individual belonging to middle class wants to own a car then he can easily shell out `1 lac to `1.5 lakh. Thus, while buying a car, price tag becomes a prime factor. Though pricing is the prime factor, performance, style and durability also matter.

So, Nano essentially being a dream project for Tatas, satisfied very competently all the criteria’s of a successful launch ,that is, tiny price tag, performance, design, style, brand, welcoming customers, mileage, space, interiors, looks, elegance and so on. But the irony started when the safest acclaimed car of Tata’s caught in flames while its way back from showroom to home. The intense media scrutiny about the few cases of Nano catching fire brought a remarkable dent in Nano sales and shattered the customers’ confidence in car. Since then Nano is struggling hard to regain its strong image in the eyes of its customers as still the huge potential of middle segment is unexplored.

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

The discussion arises about the turnaround strategies of Nano keeping in view its initial launch success, a few quality failures and distorted perceptions in the minds of its customers. This discussion will further add to the design of strategies for future new products which are well strategized for success with clear and defined conceival about the costs, and market segments but fail due to a few small but significant mistakes.

This discussion can further continue for strategic repositioning and turnaround of products accepted well in their initial stages of ‘PLC’ but matured very shortly due to certain significant marketing mistakes. Conceiving of the Idea The idea conceived about Nano was a dare dream of Tatas’ not because of its unbelievably affordable price but also because of the promise it held for providing safe personal mobility to a huge section of the Indian two wheeler riding population. It was an entirely new product

Source: Statistics by Society of Indian Autommobile Manufacturers segment with a whole different dimension of its need to contain costs within a preset target of `1 lakh. The Nano price was the only certainty at the time idea was conceived . And then starting from a clean sheet of paper , the car was designed and developed keeping manufacturing costs, material costs and production costs at lowest possible level along with maintaining its character, style, adorable looks and finished quality.

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

Problems in the Product Development Phase Ride for Tatas in the production of Nano had been anything but smooth. Tata built a Nano plant in West Bengal but was forced out in Oct., 2008 due to violent protest from farmers .This event resulted in the temporary delay in the production along with causing a huge loss of infrastructure costs of a plant almost ready for car production. Another plant was built at Sanand in Gujrat where the production finally started. These initial bottlenecks in the production somewhere affected the enthusiasm about the project and resulted in limited early availability which caused pre-bookings and lottery deliveries. This priced out many buyers negatively snatching out the momentum from the market. Almost from the start the project was plagued by problems and were magnified by intense media involvement.

Most Awaited launch When India’s Tata Motors launched Nano in 2009, the concept of the world’s cheapest car in one of the fast growing vehicles markets seems pre-destined for success. At its launch , car buying dynamics seemed to be undergoing a subtle change. Tata dealers were flooded with queries from prospective buyers. People mainly middle class were anxiously waiting for it. Being the world’s cheapest car, Tata Nano had an edge over its competitors in terms of its pricing , which helped Tata to register decent sales figures initially.

While choosing between Maruti Suzuki 800 and Tata Nano, people gave letter more weightage in terms of price and design. Its biggest USP (unique selling preposition ) was its attractive looks at lowest price. In March 2009, when Tata was launched it got advance bookings upto 2,00,000 cars but it went through lottery route to give the first 1,00,000 nanos to its lucky customers. Nano became the most coveted thing for two wheeler riders and Tata was so confident about its product that it did’nt go into any marketing plan for Nano. Its intense hype was itself doing its buzz marketing1. So, Tata got busy in producing Nanos to fulfill its intense demand but at the same time being very complacent about the market and customers perceptions of the car.

1.

Buzz marketing is word of mouth recommendations by its existing users

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

Sudden No-No for Nano Among all this hype when the new emerged middle segment of car owners were enjoying their ride in their sparkling stylish Nanos , first case of Nano catching fire was reported in March, 2010 while its trip from showroom to customer’s house. Another incident quoted the car went on flames soon after the driver reported a spark from the rear side of the car. The assurance of Tata’s cheapest car being safest proved ironical and the media which was giving intense scrutiny to the project did its job well during the bad times also.

The security failure of the car completely broke the trust of the customers in Nano. A drastic decrease in sales was noticed in November 2010 (from 9000 units to 509 units per month) when company called its existing customers to install the safety devices in the car. So with in a year the brainchild of Tatas started seeming like a failure as its sales went nearly half within a year. Sales were far off the target of 25000 cars a month and the Nano plant with an annual capacity of 250000 cars kept producing only 8000 units a month till March 2011.

Table 1: Sales Excerpts (From July 2009 to March 2012)

Month and year Nano units sold July 2009 2475 Dec 2009 4001 March 2010 4710 April 2010 3525 July 2010 9000 Nov 2010 509 Dec 2010 5784 Source: various websites of Tata motors Month and year Jan 2011 April 2011 July 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Nano units sold 6703 10012 3260 7466 7723 9217 10475

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

Tata Nano Performance vs Automobile Industry Production (Passenger Vehicles)

Industrial Scanning and analysis showed that the passenger vehicles production in the country was growing tremendously ( Fig. 3), but Nano sales showed a mixed trend till the mid of 2011 (Fig 2). The company took to replace the starter motors in the older models and launched a new model in 2012 but replacing of the parts could also affect the further sales of new model as well said , ‘Indian customers do not forgive easily’. So, there was a great challenge for Tata to retain its brand image. Inappropriate Market Positioning: Cheaper vs Affordable After the several months of disappointing sales of Nano, it became clear by the end of 2011that its cheapest tag has actually shunned its sales . The status conscious customer didn’t want to get associated with its ‘cheap’ tag and rather opted for slightly pricier rivals .

Nobody wanted to be caught with a tag of ‘poor man’s car. So rather being a functional step above a motorcycle it became known as a cut-price car. Crucially car has struggled to find a core market. The overwhelming interest in the car brought all the mixed segments of the customers in the market. So, a distinctive strategy was missing to give a correct positioning and segmentation to the extremely distinctive product. Communication complacency Tatas relied heavily on the publicity rather than a definitely designed communication strategy. There was huge involvement from media, industry and public at large . Rather than leveraging this publicity Tata became complacent about the communication.

It became the first car to be launched at zero cost of advertising with a huge success. The publicity generated was far greater than what could be generated through any conventional campaign. Tatas plea was that problem was not of the complacency. Because the Nano plant had to move from West Bengal to Gujarat, production timelines were difficult to maintain. With not enough cars being made, the company felt it didn’t have to advertise or even set up efficient distribution channels. But the hype about the car died down, and the stories about the fires gained prominence. National Conference on Emerging Challenges for Sustainable Business 2012 1093

A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

On the hindsight, apart from being delayed, the first ads were not the most appropriate .They showcased couples ensconced in Nanos , While those on two wheelers stared at them balefully. It seemed to be just for people who have to stretch themselves to buy a car; rather it could have been for housewife or a youngster who had just turned 18. But the advertising focused at parity level. Tata seemed to ratify the media story about it being a Garibrath rather than a cool car. Another ad in the early 2011 also projected the same image featuring a girl in a decidedly rustic setting awaiting the family Nano.

Initial ads of Tata Nano: Khushion ki Chabi

Such mistakes by Tatas actually fuelled the perception of a poor man’s car. The car is too much of an emotional purchase . It’s the second biggest achievement after a house and the cheapest tag proved disastrous for Nano. Resurrection by Tatas Nano is the dream of Tatas and seeing the market flooded with so many small cars Tatas still see a huge potential in Nano and is seeming to undo its mistakes in the past. As quoted by Ratan Tata on the eve of Auto expo 2012 , ‘Nano is not a flop. We have lost an early opportunity due to mistakes in positioning and marketing the product.’ The new marketing campaign by Tata is all set to change the perception from a Garib rath to a cool car as it allows young to be so whimsical with the cool car that they can drive the several kilometers for a cup of perfect tea!

Road to Lal Tippa

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

Tata is going to launch Tata Nano CNG by the end of 2012. The company has given the car a new makeover by additional features like new interiors, a powerful gasoline engine, better fuel efficiency and attractive colors like champagne gold and papaya orange. Another initiative is offering Tata Nano happiness guarantee which more than doubles the car’s warranty from 18 months to four years insisting on its reliability. Offering fast track financing for buyers with loan approvals in 48 hours and reducing down payments to just `15000 is another measure. Tata is planning to enter new global market such as Thailand, Myanmar, Indonesia and Bangladesh with Nano. The 2012 version of Nano was unveiled by the Tata in the end of 2011 and now as the fiscal year ended in March, the new efforts to promote the 2012 Nano in the Indian market have started paying off. After July 2011 till March 2012 Tata Nano has registered an increase in sales and crossed the 10000 mark at the end of the fiscal year 2011-12 (March 2012, 10475 units, Table1).

The lovely Nano is a big beneficial car in small package and its value is being recognized gradually by the customers. Hence, with the conviction in mind that the potential of Nano market remains as vast as it was originally predicted; Tata is moving with some strong steps in the market as it is also planning to launch a diesel variant of Nano in near future which will prove a value preposition for its customers.

Long way ahead Nano has to go a long way in realizing its dream of 20,000 plus units per month that would get its plant in the western state of Gujarat running full throttle which is presently moving at the level of around 10000 units per month. Hailed as a showpiece of innovation spawned from and targeted at the emerging upper middle class ; Nano is working hard to undo its mistakes in the past. As small car segment is having very strong potential, there is a flood of small car brands in the Indian market. It has to face strong competition from its near rivals such as Bajaj’s RE 60 , Maruti Suzuki Cervo ( approx. ` 1.5 lakh) , Maruti Alto and slightly pricier options Hyundai Santro, newly launched Hyundai Eon etc. Nano faces rising competition from used car segment

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A Dream Shattered or Still A Big Potential: A Case Study of Tata Nano

also. Apart from the strong competitors, high inflation and slow economic growth also put another challenges for Tata Nano. Tata is doing hard to resurrect the product segment by intensive reliability engineering, advertising innovations for repositioning and strong distribution and service facilities to recollect the trust of its customers. Let’s see how Nano makes its makers proud amidst conflicting perceptions of customers, the immense competition and rising inflation by maintaining expected performance at its tiniest tag!!! Questions 1. What do you think were the reasons due to which Nano was such a welcome launch more than any other car launch in the industry previously? 2. As Cheapest car being its USP (Unique selling Preposition), how it went against the sales performance of Nano subsequently.

Give key reasons. 3. “Intense Media attention about the product went for and against it also.” Elaborate . 4. How the changed perceptions about the car impacted its sales? Also give other key reasons for such a vast variation in its sales performance. 5. Despite the various resurrection efforts by Tata what potential do you see of Nano in rapidly growing small car segment in coming years in the view of rising competition in the segment?

References:

‘Auto Expo 2012: Tata Nano is not a flop, just an opportunity wasted: Ratan Tata’, Economic Times, Jan 6, 2012. ‘No Takers: Is the Tata Nano Running Out of Gas?’, India [email protected], January 27, 2011 Buddiraja S. , ‘ Case Analysis in Marketing Management’, Tata Mcgraw hills, New Delhi. Dhingra Mayank, ‘Marketing Case Study: Tata Nano — Document Transcript’,( Aug 2009), Slideshare. India Today/ Business/Story New Delhi ,Jan 6 2012. Kotlar Phillip , ‘Marketing Management: a South Asian Perspective’ 13th Edition , Pearson Education,New Delhi. Statistics by Society of Indian Mobile Manufacturers ,http://www.siamindia.com/scripts/market-share.aspx Economic Times ,’World’s cheapest car’ tag backfires’, ,24 Jan, 2012 Web Sources: www.tatamotors.com/media/press-releases.php?id=732 www.zigwheels.com/tata-nano/ www.iol.co.za/business/business-news/home-sales-of-world-s-cheapest-car-backfire-1.1219524 Various websites of Tata Motors

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