Analysis of Tata Nano Business Case

Categories: Business

Analysis, Pages 10 (2289 words)

Views

530

Ratan Tata, chairman of Tata Motors Ltd., hoped to raise the status of Middle class families in India by offering the Tata Nano. Expectations were increasing amongst the customers regarding the product features and its efficiency. Competitors were eagerly waiting for its arrival to find out what they were going to be up against. It had strong and convincing features and was actually a good product. Unfortunately there were too many strategic marketing problems that kept it from being as big as they thought it was going to be.

Don't use plagiarized sources. Get your custom essay on

“ Analysis of Tata Nano Business Case ”

Get custom paper

NEW! smart matching with writer

We will explain the problems it met and showcase some alternative solutions that could be implemented.

Strategic Marketing Problems

Tata Nano tried to position itself in the two-wheeler market. Tata Motors thought they should go after the young college kids or anyone who currently owns a motorbike. They believed that if they created a car that could match the qualities that make the motorbikes so attractive: the fuel efficiency, low purchase and maintenance costs, and small size.

What they didn’t realize was that they priced themselves out of the market. While the Nano was set at the lowest price for an automobile it was still expensive compared to the motorbikes. They were never effective in their efforts to target or market to any group and never seemed clear on who they were really going after. They had so many options to choose from when trying to position itself in the market. But in the end they went half way and never fully committed to a single group.

They tried to go after the two-wheeler market but priced themselves out of that market, while they marketed themselves as “the world’s cheapest car.” Which brings up the next problem it was marketed as a cheap car. It’s hard to understand the reason they marketed the Nano this way. Why would anyone want to buy a car they thought was cheap? They should not have played up the “cheapest car in the world” sound bite that the chairman loved to say. In a country like India, where status and class is so important, where, there is still a caste system, why would anyone buy the “cheapest car in the world?”

Production delays, waiting lists, reports of the cars catching fire. These were the big things that hurt the initial launch and set them back. Tata Motors planned to produce 350,000 Nanos in the first year at a plant (Singur). Unfortunately protest broke out from the farmers whose land was taken to build the plant. They were upset that their land was taken from them without compensation. They had to move to a new site, which meant taking substantial financial losses. Also they had to delay production 18 to 24 months and the initial production went down to 50,000 Nanos. Waiting lists were set up, where people had to pay to pre-order and put down a hefty deposit. Then the problems began to surface. The reports of cars catching on fire, the noise and heat problem because the engine was in the back. There were also installation issues as well as other technical issues. Ratan Tata called his shot way before he got to the plate.

He hyped up too much without fully knowing what the customers really wanted and how much they were willing to spend. He said they could undertake this feat and ended up going through with it to prove they could. Expectations for the Nano grew and it soon got out of control. So in the end when the Tata Nano was launched and the initial problems were discovered, it took a long time to gain people’s trust back. Looking at Figure 1 you can see the sales from 2009 and 2010 by months. You can see the slow start and the ups and downs because of the problems that surfaced after the initial launch. There was a great quote from an article by Matthew J. Eyring about the Tata Nano: “A cheap car that’s not really cheap, a safe car whose safety was questioned, and a poor people's car that people weren’t buying.” I think that this is a great nutshelling of the problems with the Tata Nano.

Alternatives Analysis

After analyzing where Tata Motors went wrong in their marketing and in general with the Tata Nano, we then considered alternatives to the problems outlined above. Because Tata Motors stressed the insanely low cost of its Nano car, it became eminent that it would compete with two-wheel motorbikes. Since theses two-wheelers were so maneuverable, they appealed greatly to college students. One possible action would be to create an ad campaign that would specifically target college students to take them away from these bikes.

The Nano could also be equipped with specific features for these students. Another possibility would be to advertise a more organized, saner way of transportation. Play up a utility angle with the Nano. With all of the motorbikes on the road in India, traffic can be chaotic and confusing. With more people driving cars (or mini cars) traffic would be much neater. Finally, in order to compete with motorbikes, Tata Motors should stress fuel efficiency and low maintenance costs of the Nano. They should put as much emphasis on this as they do the price of the car. People choose motorbikes for these two reasons but they now need to be their two reasons for choosing the Nano.

In the event of production delays, the company simply needed to plan the location of their plant much more carefully. Instead of focusing solely on a location that best facilitates distribution, economic factors of building in that location need to be taken into consideration. The fact that their plant was shut down due to farmers protesting is ridiculous, especially when it comes to a project of this size. Also, the initial production numbers were set very high and relied heavily on the construction of a new plant. The company should have done whatever they could to modify current facilities that could produce the Nano. Although this would lead to less production, it would make sense. They should produce less of the Nano in order to test its performance in the market. After a successful entry, plans should be made for large-scale production (a new plant).

The CEO planned poorly for the future, even when the product didn’t even hit the market yet. His goal on minimal costs was his backbone for the Nano and he relied heavily on this one feature. He should have undergone more market testing for his product instead of assuming that everyone was going to go crazy for his product. He needed to come up with the proper campaign that would attract customers for additional reasons other than cost. Everyone already knows the price is extremely low, so ads should stress other qualities of the vehicle.

They need to ask themselves three questions:

What does our product exactly do?
Who is this product helpful to?
What parts of the country/world will accept this product?

Then use a combination of the various market segments to narrow down on an EFFECTIVE target market. Some of these may include, but are not limited to demographic, geographic, and behavioral. They were really pushing the whole “cheap” aspect in an area where the market segment is more interested in cars that symbolize a greater status. In other words, the Tata Nano is the complete opposite of what the majority of people in India wanted

Advertising the car solely as a “cheap” car was a bad marketing decision: While money is very important, there are other things you need to consider when marketing a car such as the Tata Nano. Really focus on safety (one of the main reasons the Nano didn’t sell - exploding cars for example). Market it as both a cheap and utility car (but be able to back it up). Re-Evaluate your marketing team. Also money is a status symbol, so people aren’t looking for cheap cars in India. Continue to market in India but really focus on the safety and cheaper price, but don’t make it cheap enough that people see it as “hurting” their status.

Invest more money in research and development regarding safety and quality. Don’t release the Nano until you are positive the safety aspect is accomplished. The last thing you want is a low safety rating before you even start selling cars. Take a good, long, hard look at your suppliers and see if you can make improvements with them and quality/safety. One reason the people in India weren’t buying the car was because the low cost was seen as a “weak” status symbol. Possibly increase the price a little bit to add to that status symbol. This will help reduce people’s views on the Nano as a “poor man’s car”

Alternatives Recommended for Implementation

Tata Motors took a bold stance within the Indian car market when they announced the Nano as a concept to bridge the price and quality gap within the current transportation options. The target price of Rs. 1 lakh was the goal of Tata’s upper management that they believed would create a new submarket for the company. Unfortunately, Ratan Tata staked that claim before he had a full understanding of the demands that this car would require. The two basic components to successfully selling the world’s cheapest car included one internal supply chain problem and one external marketing problem.

The internal problem that Tata Motors ran into was their production planning that caused them both a delay of their end product by six months and a substantial financial loss. Losing control of their Singur site demonstrates the uncertainty and unprofessional aggression with which Tata Motors seemed to act under the pressure of such a low bottom line price. Obviously India holds a substantial amount of political uncertainty and flaws in the production planning are expected to appear, but with such high press attention and industry expectations on Tata’s every move they should not have been in such a precarious position in the first place. Choosing an initial plant location should have been much more thoroughly carried out without the chance of a complete forfeit of the space that required all progress to be carried back.

More importantly the decision to announce the concept and price of the Nano before production plans had been approved was a mistake because it was not staked in reality yet. The decision to make the announcement early like the company did was driven by the excitement of press coverage rather than the presence of established business and design plans. Had the company waited to announce the price until after they had made significant headway into the Nano’s development they may have come up with a more reasonable number that still fell under the price of the Maruti 800, as well as carried on production without such a gash in their streamline of operations that caused them a loss of time and money.

The external problem that Tata Motors failed to realize until their initial sales numbers came back to them was the lack of an established market for the Nano. The concept of the world’s cheapest car seemed like it would be enough to convince a large share of middle class Indians to purchase a Nano. However, their target market was slightly more complicated than just people who wanted to buy a cheap car. The real market that Tata had to capture was one that had been driving motorcycles as their only option due to price, but used their current motorcycles far past the true intent of the vehicle’s capacity. The beginning of the case mentioned the precarious nature of Indian families all riding through the streets on their single motorbike. Tata’s Nano was the solution to this problem that posed not only safety risks, but also a great deal of inconvenience for the drivers.

As the middle class grows at a rapid rate projected to be 41% of the population by 2025, the Nano could help offer those moving up economically their first chance at a car. This would be accomplished through campaigns revolving around the need to move away from the motorbike as a primary way to transport the family around. Tata needs to convince the budding middle class that they are allowed to spend a little extra on the Nano for a great increase of convenience to themselves.

Parallel to the message of greater convenience, consumers must also conceive the Nano as similar to the motorbike in many of its mannerisms, such as its maneuverability, relatively good gas mileage, and affordable price. Emphasizing the Nano’s upgrade in transportation convenience compared to the motorbike, while continuing the similar pricing and maneuverability qualities of the motorbike that attract the Indian population will allow the world’s cheapest car to make a successful impact on a budding population segment. The ability to coax this group to choose Nanos as their first car will determine the true success of sales for Tata Motors.

Conclusion

We understand that while Tata Motors has seen some success, for the most part the Tata Nano is considered a failure. It should be noted that we see this as more of a marketing failure than anything else. There is a lot of potential here but the marketing campaign was lazy and uninspired, they took shortcuts to reduce costs, and faced hardships in the form of protests, etc. Tata Motors has a bright and innovative future ahead of them, this is failure will serve them stronger in the future.