Tata’s Nano

Stuck in low gear

A brilliant, cheap little car has been a marketing disaster
Aug 20th 2011

P
erhaps the marketing plan is under here

RATAN TATA had a dream of getting poor Indians off the motor bikes to which whole
families precariously cling and into shiny new cars they could buy for 1 lakh (100,000)
rupees, or about $2,200. As head of Tata Group, he envisioned distributing flat packs of parts
to rural mechanics who would become successful entrepreneurs assembling the kits into
complete cars in the heartlands where 750m poor Indians live. Manufacturing reality squashed
the flat packs and the Nano, as the world's cheapest car came to be called, is now made in a
giant factory in Sanand, Gujarat. It could turn out 250,000 Nanos a year, but it is barely
ticking over.

Since its launch with great fanfare in 2009, the Nano has swerved from one crisis to another.
There was opposition to Tata's original plans to site the factory in West Bengal, forcing a last-
minute scramble to switch the site to Sanand. It opened last summer, but not enough cars
came off the production line to meet a huge surge of early orders. The orders then petered out.
To make matters worse, a few cars burst into flames, raising fears about the Nano's safety.
Sales, which had been predicted to be 20,000 a month, fell as low as 509 in November last
year. Sales recovered to 10,000 a month in the spring, but have fallen back again this summer:
3,260 in July, amid a slump in the Indian car market caused by rising interest rates and fuel
prices.

“The Nano is a brilliant concept”, says Hormazd Sorabjee, editor of Autocar India. He has
driven 10,000 miles (16,000km) in his, and praises the car's roominess, fuel economy and
general nimbleness around town. “It does the job, it feels good with its high seating position,
but it is a monumental marketing blunder.”
Carl-Peter Forster, a former boss of General Motors Europe who took over as head of Tata
Motors in February 2010, admitted earlier this year that he was having to reinvent the Nano
business model. There was no real national distribution scheme, very little marketing and
advertising, and no effective system of consumer finance. The irony was that many rural
Indians never got to hear about or have the opportunity to see the car that was supposed to
help transform their lives. IDÁIG karakterekszáma

The Nano's marketing problems began with its product positioning. The price crept up by
around 15%, putting it out of the reach of first-time buyers with no regular employment or
payslips to back an application for credit. And by emphasising its cheapness rather than its
basic but appealing qualities, it deterred slightly better-off consumers who could afford one
but aspired to more sophisticated vehicles, such as those from Tata's biggest rival, Maruti, the
leader in India's small-car market.

Despite pending retirement, Mr Tata has once again taken a personal interest in the fate of his
troubled pet project. Under his guidance, Mr Forster is belatedly putting in place a new
scheme for consumer finance with local banks. An improved guarantee is also being offered.
And television advertising is beamed nationwide with a network of local drop-in centres
fanning out across the country to introduce the Nano to small towns and villages.

Other car companies have been paying close attention to the Nano and its shrunken
production costs. The term “frugal engineering” was first used by Carlos Ghosn, the boss of
Renault-Nissan—and an admirer of what Tata Motors has achieved with the Nano—to
describe making basic, low-cost products. At Renault Mr Ghosn used a similar approach,
although a bit higher up the market, to make a back-to-basics car called the Logan at the
company's Romanian subsidiary. According to Hadi Zablit, who studies emerging markets at
Boston Consulting Group, around 400,000 Logans are sold every year and have a higher
profit margin than other Renault vehicles.

Ford and General Motors, however, seem to have abandoned plans to imitate the Nano in their
Indian factories. But other companies, such as General Electric and Tata's chemicals arm,
have applied frugal engineering techniques to produce cheap products with great success. GE,
for instance, has developed basic medical scanners in India and now sells them in the West.
Despite the cleverness of its frugal engineering, Tata Motors has not yet cracked frugal
marketing