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o Takers: Is the Tata Nano Running Out of Gas?

Published: January 27, 2011 in India Knowledge@Wharton On December 17, almost two years after the Nano was launched, Tata Motors aired the car's first television commercial. Set in small-town India, it shows a young girl repeatedly asking her grandmother, "When will it arrive?" Finally, after narrow lanes, rocky terrain and compliments from passers-by, the sunshine-yellow Nano arrives. The little girl excitedly hugs the car. Then she notices a gathering of admiring neighbors, and dabs a little dot of kohl on the car to ward off the evil eye. It may not be that easy for Tata Motors, the manufacturers of the Nano, to wish away the evil eye. When it was launched in March of 2009, the Nano was regarded as the hottest thing on four wheels. "The design language is in the same space as the Mercedes Smart," said BusinessWeek. Reported the Financial Times: "If ever there were a symbol of India's ambitions to become a modern nation, it would surely be the Nano." Cut to the end of 2010. "India's Nano becomes a no-no for car buyers," says The Washington Post. Last November, Tata Motors dispatched only 509 units of the Nano to retailers, according to SIAM (Society of Indian Automobile Manufacturers). In a year that the Indian auto industry grew close to 32% (based on SIAM data), Nano's dispatches declined steadily from a high of 9,000 units in July. (There was a pick up, however, in December.) Even before the first car hit the roads, the Nano brought controversy. In October 2008, work at Tata Motors' Singur plant in West Bengal came to an abrupt close because of political pressures. The company announced plans to move the factory across the country to Sanand, Gujarat. (This started operations in June 2010). In the interim, it rolled out only 50,000 units (as opposed to 300,000 units at Singur) from its Pantnagar plant, in Uttarakhand. "As a result, instead of an open sales launch, we had to launch the car through the booking route in April 2009 and could begin deliveries only in July 2009 -- that, too, in a staggered manner," says Tata Motors spokesperson Debasis Ray. (The company's executives and channel partners have been instructed not to interact with the media.) Big Boom for Bookings Nonetheless, the Nano remained a modern-day symbol of India's ingenuity. The public euphoria secured Tata Motors more than 200,000 bookings, from which a computerized program shortlisted 100,000 "lucky" customers for deliveries through 2010. Of the remaining, 55,000 chose to retain their bookings for the second lot of deliveries. The rest were refunded their entire booking amount (US$1,800 for the Nano base model; US$2,400 for the Nano CX; and US$2,800 for the Nano LX). By the end of the year, it was a different picture. As of December 2010, there were about 77,000 Nanos sold -- a far cry from the one million units group chairman Ratan Tata had been talking about in 2005. This figure includes open sales (that started in August 2010) and some deliveries to the second batch of applicants. That would imply that at least 78,000 (23,000 from the first

editor of Auto India. But in the case of the high-profile Nano." Ray notes. and the "halo effect" of being a Tata product. "They should have taken strong measures to convince people the car was safe." Ray also denies that the declining deliveries are related to diminishing demand. to have initial safety concerns. Consumer protection is in its infancy. "We came to the conclusion that this car would go into the hinterlands. In 2009." They also offered "enhanced features" to all those who had purchased the car. there are cancellations. "We've always said that whenever there is a product launch through a booking route. we were nearing the end of the year." says Sudipt Roy. these concerns made waves. but insisted it was not a "recall. They have not leveraged anything." The Nano had received unprecedented global media coverage thanks to its size." he says. It is not uncommon for cars. the real problem behind the declining sales is "a total marketing failure. but the Tatas did not leverage this at all. Those who have a quieter launch are better equipped to alter the product and the plan as they go along. and to recall a product might well stigmatize it for life. it was the banks [giving auto loans] who were advertising [and not the company]. Even during the bookings. the Tatas went into denial. so we should make a robust car even . Instead of using this as an opportunity (see opinion piece by Wharton's John Paul MacDuffie). I think there has been a sense of overconfidence and arrogance on the part of the company. You do not carry a lot of stock into the new year.batch plus 55.000 from the second) have cancelled or "delayed delivery" (where customers opted to take delivery later). professor of marketing at the Hyderabad-based Indian School of Business (ISB). The Tatas may well have taken the right approach in the Indian environment. "There are also people waiting to take delivery at a time of their own volition. "In fact. a US$2.000 price tag. That may have made it even more difficult for the company to manage people's expectations. "Also. so you have to look at your stocks in a manner that they match what you're supposed to deliver during the year." Tata's Ray says their customer satisfaction studies with current Nano owners indicate that more than 80% are "satisfied" or "very satisfied" with the car. They thought the car would sell itself because it was 'the Nano' and [because of] the kind of coverage it received around the world." says Sen. demand has been picking up with open sales. away from the glare of the media. They just took their eyes off the ball. But we are not disclosing the numbers in the public domain. because people will want to purchase cars that are produced in the new year. especially in the hot weather conditions in India. the Nano won the 'Indian Car of the Year' award. A case in point: the incidents of fires in a few cars in mid-2010. Tata Motors released a statement saying that the fires were caused by "additional foreign electrical equipment having been installed or foreign material left on the exhaust system. "Those who start with lot of buzz have to deal with the aftermath of disappointed consumers." 'Overconfidence and Arrogance' According to Gautam Sen. They could have handled it much better.

we were only delivering pre-booked cars. "[The Nano] was not available off the shelf until we started open sales. Until August [2010]. "Dealers expect early-bird owners [of the Nano] to command a hefty premium of Rs. Tata Motors might have helped sales had it disclosed the easy availability of the Nano (because of the cancellations and delays). The general perception was that consumers would have to wait two years for delivery. however. would I not be wasting money? So in classical marketing style. Ray. But concerns about the car's safety persist. expecting to sell them at a premium when they get delivery. production timelines were difficult to maintain. believes the core problem was the initial lack of a mother plant. had I started advertising. Others were cancelled later. and many question whether that effort was aggressive enough to erase the image of a Nano engulfed in flames from consumers' minds. Butthe hype about the car died down. With such an initiative." he says. They . "The root of all [of Tata Motors'] problems is that they didn't have the capacity right to go all over the country from day one. the company felt it didn't have to advertise or even set up efficient distribution channels. Once demand started to fade. But there is a large percentage that falls under "delayed delivery. "There is no question of sluggish sales. Despite that. Because the Nano plant had to move from West Bengal to Gujarat. Some orders were cancelled initially. I have brought in advertising only when it was required -. Communication Complacency Continues The communication complacency was evident elsewhere. This would not have been an easy choice for the company. there is no engineering defect." reported economic daily Business Standard. we are simply adding features. After the huge prelaunch hype.000 bookings? Industry observers say there are no clear answers. 30. observers have noted: New buyers are not coming forward because they feel they don't stand a chance of getting delivery until the company sets up additional capacities. With the Nano. Abdul Majeed.more robust." Indian consumers have a lottery mentality: People apply for things they don't want.000 [nearly one-third the price of the car] because of the initial shortage in supply.initially print and now. Trouble with the Mother Plant In fact. With not enough cars being made." What really happened to the original 200. defends the Tata's approach. television. I was not selling openly because I did not have the capability to." says Tata's Ray. leader (automotive practice) PricewaterhouseCoopers (PwC) India. There is no way for me to know what the intentions of people buying the Nano are. Experts concede that part of the problem was not of the Tata's making. But this has resulted in an ironic situation. the most important thing is to have the mother plant up and running. and the stories about the fires gained prominence. "We cannot comment on speculative buying. A 'recall' happens when there is an engineering defect and you want to correct that defect." says Ray. a few days before the launch. That's [the reason for] the upgrades. it would have caused public embarrassment to admit the car was not moving.

Tata Motors.the father driving it. "Since the exit of Rajeev Dube [president. Tata intended the Nano to be bought by those graduating from two-wheelers. But instead of reaching out to the intended segment. 'Here is a car that's cheap. the son in front of him." One of those issues was the product's positioning. They have to win the battle of the mind. understanding their purchase behavior. so buy it. because a car is an aspirational product. The attractive price tag -. With over 11 million two-wheelers sold in India last year (according to SIAM). For 50% of the people. "There is a great challenge in telling people that this is an economical car. most bookings were from those who were familiar with cars. . leveraged blogs.probably had a plan in place that they couldn't execute. "The positioning of the car was entirely wrong. "Now that we have begun open sales [available across the country since early January] for the first time." Tata's Ray concedes that during the booking phase. You can't say. most of the team responsible for the marketing was no longer involved. "Eventually. and purchased online advertising." says Roy." The Way Forward With the spate of media articles.' That will not work. There was a great disconnect in the kind of people they were reaching out to and the kind of people they wanted to sell to. the car has to connect with the right customer segment emotionally. the Nano's marketing has recently taken off. cites yet another reason. bazaars. the company had no control on who applied. print. "They ended up selling 75% of the cars in five major cities in India. "The online medium was hardly the right way to sell to their target segment." he says. Tata Motors seemed to be consumed by the pressure on margins. where they can create buzz around the car through word of mouth. They relied heavily on non-conventional methods: They created a special Nano website where one could design their own Nano and play games. 2010 ended on an upbeat note. used social networking sites such as Facebook and Orkut. passenger car division]. the whole passenger car division was restructured. It should be around shops. took time to understand the issues.784 units (according to SIAM). The new team. CEO of Kotak Mahindra Prime (which makes auto loans). Hence. That the target segment for the Nano was two-wheeler owners and first-time buyers from small towns and rural areas was evident from the oft-chronicled story of Ratan Tata's inspiration for the Nano: On a rainy day. we are proactively going to those [consumers] for whom the car is meant.the cornerstone of the Nano mania -. "That is something the Tatas have to crack. because they just weren't ready for a whole roll out. believes ISB's Roy." Sumit Bali.turned out to be a double-edged sword. the market clearly exists. television and even radio advertising. with diverse backgrounds. and the wife behind him holding a baby. it was a second car." he says. Tata's Ray predicts that the numbers will only increase and production schedules are being gradually ramped up." Roy says." he says. as well as other targeted initiatives. with December sales to dealers bouncing back to 5. Tata saw a family of four on a scooter -.

Tata Motors Finance.the Maruti Suzuki Alto [starting at US$4." he adds.000 (Mumbai prices). The segment they're targeting is very cost competitive. The Nano has had its share of challenges. faces unexpected risks as the brand has to strike a competitive balance between several aspects of the offering and the price. especially at the level of disruptive innovation at the lower end of the market. Bangalore. a subsidiary of Tata Motors that helps finance their vehicles." Additionally.. Some 1.000 km (whichever comes earlier) at no extra cost. a book that uses the Nano as an analogy to "teach the world to think big.. And the proof of the pudding lies in the fact that they [Tata Motors] have just indicated that they will roll over the campaign for another month-and-a-half or two. "The dealers have said the selection of sites is correct." says Pareek. co-author of Nanovation. was clear.000 car." "We think the way forward for Nano is to help villagers in rural India and those at the bottom of the pyramid [to] get financing and make the process of buying their first car less intimidating. with almost 90% assistance at "easy rates. Tata Motors has more than doubled the Nano's warranty to four-years or 60. Financing Is Critical The financing might prove vital. The channels are being scaled up and tailored to the customers. "They want to get two-wheeler owners who wish to upgrade to a four-wheeler in tier two and tier three towns. especially since the car is now more expensive. The message to Sanjay Pareek. Ramesh Kumar. Ray says that most of the Nano's targeted customers felt intimidated by flashy showrooms. [the Nano] won't be very attractive to people. 289 Special Nano Access Points have been set up for customers to test-drive or test-ride the car. As a further purchase incentive and a confidence-boosting measure.700 and the top variant as much as US$4.000. Tata Motors has set up financing arrangements with 29 banks and nonbanking finance companies. they need to keep their cost structure very tight. will process the loan of applicants with unclear documentation (a rampant problem with customers in that segment) in just 48 hours." . you can't go to a US$4. PwC's Majeed warns that "from US$2. Perhaps another way forward for the Nano is to get back to focusing on the people for whom the car was originally intended. believes that "any company attempting an innovation with regard to high-involvement durable categories. because if the price differential between the Nano and the next best alternative -.comes down. the communication that went out clearly stated that the Nano is now easily available with an easy-payment scheme. Accordingly. So in addition to the 874 regular sales outlets.200 salespersons have been recruited and trained to work out of these dealerships. president of marketing services firm Percept Out-Of-Home. The base model is now US$2." Freiberg told India Knowledge@Wharton.. The company has undertaken a massive outdoor campaign across 104 towns in five states. But is that not typical for many new product? S. professor of marketing at the Indian Institute of Management. Customers can also purchase a maintenance contract at US$2 per month.That is exactly the path forward recommended by Kevin Freiberg." To soften the blow.000] .

28. the sales were over 5. "But as long as the Nano gets its act together. power windows. it will be able to get good market share and create a new segment. create a new distribution channel and try out new business models to get more Nanos out." There will be new challenges and fresh competition. will come at a price. if it is true that those who had initially booked the car have now canceled and gone away." Here's what you think..700. the sales in December and January are all new customers. Will the new strategies -. Power. five-speed gearbox and even an airbag.a more powerful engine. they need to create a perception of the vehicle being safe." says author Freiberg. but in a category like cars.700.some still on the drawing board -. PwC's Majeed expects increased competition in the small car segment. experts say.But the Nano now seems to be well poised to overcome its early setbacks. So would it not be right to conclude that the Nano is demonstrating its acceptance -. Total Comments: 2 #1 Saving Tata Nano What can Tata do in order to improve the sales of Tata Nano? In a nutshell.. In December 2010. just on the basis of a trough in the numbers in November 2010. repeated in January 2011 with sales over 6. power steering. And there is another positioning problem coming up as the Tatas add bells and whistles -. albeit slowly. By: Mukesh Gupta. "But we do know this: Tata Motors is a great company with a deep culture of commitment to the needs of the customer.for its features. performance and pricing -.US #2 Tata Nano Is Picking Up I think people have been premature with their reaction to the marketing of the Nano. Most important. coming in after free sales have begun. Logically speaking.among customers who are making a considered judgment and not being swayed by euphoria? This clearly establishes the appropriateness of the Tata Nano. this is in line with the trend when sales began in July 2009. SAP Sent: 12:52 AM Fri Jan. an idea like t . It will be priced close to the "We don't know.2011 . Auto India's Sen points to the Alto with the twin cylinder engine that Maruti Suzuki is planning to introduce in 2012. in all its forms. We can't wait to see how they handle this situation.