Tata Nano


Tata Nano
The People’s Car that Promises to
Reconstruct the Automobile Industry
Questions to Consider
• Did Tata Nano, as originally conceived, create exceptional utility?
• Was it strategically priced to capture the target mass of four-

wheeler noncustomers?
• Did it exercise target costing and hit its cost target?
• Did it effectively overcome hurdles for adoption?
• Despite its initial success, by the time the Nano was

commercially available, sales fell short of performance
expectations. In your opinion, what were the major causes for
Tata Nano’s setback? Can you explain this outcome using the
framework of blue ocean strategy?
 INSEAD Blue Ocean Strategy Institute 2013

VIDEO
PART I
The People’s Car:
Exceptional Utility at Low Cost

Competition in the Automobile Industry
Motor Vehicle Sales in 2009 Passenger Car Sales in 2009
Small and compact

(50%)
Other passenger
cars
Passenger cars (15%) Other vehicles

Noncustomers of the Automobile Industry
The First Second Third

Market Tier Tier Tier
Three-tiers of Noncustomers
• 1st tier: Existing passenger car owners who were dissatisfied with their cars’ high
maintenance costs (such as fuel and insurance), adverse effect on the environment, or the
less-than-satisfactory maneuverability on India’s rough road.
• 2nd tier: Two-wheeler buyers who could not afford a passenger car, as the price of an entry-
level car was about 5 times that of a scooter.
• 3rd tier: The great masses of Indian people who did not even own a scooter and relied on
public transportation for their daily mobility needs. (90% of the Indian families did not own a
motorcycle.)
The Sequence of a BOS Move
Buyer Utility
Is there exceptional buyer utility in
No - Rethink
your business idea?
Yes ?
Price
Is your price easily accessible to the
mass of target buyers? No - Rethink
Yes
Cost
Can you attain your cost target to
Profit at your strategic price? No - Rethink
Yes
Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front? No - Rethink
Yes
Commercially
Viable Blue Ocean Idea
Passenger Cars: The Biggest Blocks to Utility
The Buyer Experience Cycle
1. 2. 3. 4. 5. 6.
Purchase Delivery Use Supplements Maintenance Disposal
Customer
Productivity X X
Simplicity
X
The Utility Levers
Convenience
X X X X
Risk
Fun and image
Environmental
friendliness X
X Blocked utility
Two Wheelers: The Biggest Blocks to Utility
The Buyer Experience Cycle
1. 2. 3. 4. 5. 6.
Purchase Delivery Use Supplements Maintenance Disposal
Customer
Productivity X
Simplicity
The Utility Levers
Convenience
X
Risk
X
Fun and image
X
Environmental
friendliness
X Blocked utility
Reconstructing Across Alternative Industries
Mr. Ratan Tata envisioned a form of transport that reconstructs across
“a typical small car and a motorcycle; a vehicle that could be affordable
and low cost enough to be within everyone’s reach; a ‘People’s Car’, built
to meet all safety standards, and designed to meet and exceed emission
norms and be low in pollution and high in fuel efficiency.”
Alternative Industries
Alternative Industries
Strategic Groups
From Chain of Buyers
Competing To Creating
within Complementary Offerings across
Functional/Emotional Appeal to Buyers

Time
Six Paths Framework

Reconstructing Across Alternative Industries
Two wheelers Four wheelers
Tata
Nano
Affordable price Safety
Fuel Efficiency Comfort in all-weather
Easy Maneuverability conditions
Durability, Speed

Tata Nano’s Four Actions
Eliminate Raise
Space and Comfort
Luxury features Eco friendliness
Fuel economy
Maneuverability
Easy financing
Reduce Create
Models and Colors Easy access to purchase

Materials and Parts Pride and Status
Performance

Strategy Canvas of Tata Nano
Tata Nano
High
Small & compact cars
Offering Level
Motorcycles
Low
Price Models & Colors Performance Space & Fuel economy Easy financing Pride & Status
Comfort
Luxury features Material & Parts Safety Eco friendliness Maneuverability Easy access to
purchase

Buyer Utility
your business idea?
Yes
✓ No - Rethink
Price
No - Rethink
mass of target buyers?
Yes
?
Cost
Profit at your strategic price? No - Rethink
Yes
Adoption
Yes
Commercially
Strategic Pricing against Alternatives
Step 1. Identify the price corridor of the mass Step 2. Specify a level within the price corridor
Three alternative product/service types
Different form,
Different form, and function,
Same Form Same function same objective
• High degree of legal and resource

protection
Upper-level • Difficult to imitate
pricing
Price Corridor Mid-level • Some degree of legal and resource

pricing
of the Masses protection
Low-level
pricing • Low degree of legal and resource
protection
• Easy to imitate
Size of circle indicates is proportional to number of buyers that

product/service attracts

The Strategic Pricing of Tata Nano
Rs 400,000
I think the cheapest car was about 2
lakh rupees and a high end motorcycle
was maybe of course went over a lakh
Small and of rupees but most of them were about
Rs 300,000
compact cars 30,000-40,000 Rs. So something around
a hundred thousand or one lakh would
be a figure that would be enticing.
-Mr. Ratan Tata, Chairman of Tata Group
Rs 200,000
Used cars
Tata Nano
Rs 100,000
Rs 80,000
Rickshaws
Rs 30,000 Two wheelers

Ox carts
Buyer Utility
your business idea?
Yes
✓ No - Rethink
Price
No - Rethink
Yes
✓
Cost
Profit at your strategic price?
Yes
? No - Rethink
Adoption
Yes
Commercially
VIDEO
PART II
Create a Win-win for Tata’s Profit:
Target Costing Based on
Excellent Utility and Strategic Pricing

A Cheap Car: Cutting Costs across the Board
Tata Nano
High
Offering Level
A cheap car
Low
Comfort
purchase

Target Costing of Tata Nano
“And we made another important decision,

which was we should not give the market a half
car or a pseudo car. It should be a full car,
price remaining the same.”
– Mr. Ratan Tata, Chairman of Tata Group

Key Principles of Cost Reductions for Tata Nano
• Target costing should be based on:

• Delivering the key utilities that Indian families value
• Strategic pricing of the Nano

Key Levers Pulled to Achieve the Cost Target
The Strategic Price
The Target Profit
The Target Cost
Streamlining and Partnering

Cost Innovations
Pricing Innovation

Tata Nano Achieving the Cost Target
Streamlining and
Partnering
Cost Innovations
• Eliminated non-essential • Created a “Suppliers Outreach

Program” to jointly pursue cost
options
savings.
• Eliminated or reduced non-
essential parts
• Collaborated with banks on
Nano financing and publicity.
• Reduced the use of raw
materials while ensuring safety
• Used retail stores and post
offices as distribution channel.
• Cost innovated on technical • Planned to deliver the car in
norms (e.g., engine size &
SKD kits to satellite mini-
position)
factories.

Buyer Utility
your business idea?
Yes
✓ No - Rethink
Price
No - Rethink
Yes
✓
Cost
Profit at your strategic price?
✓ No - Rethink
Yes
Adoption
No - Rethink
Are you addressing them up front?
Yes ?
Commercially
Major Adoption Hurdles of a Business Idea
• Employees can be skeptical and disaffected.
• Partners can be unconvinced and uncooperative.
• The general public can be resistant and critical.

Tata Nano BOS Ready to Take Off
• Employees were proud and motivated to be part of the history-
making team.
• Business partners were engaged from the design stage and

motivated to pursue cost innovations to help Tata Nano achieve
the target cost.
• The “People’s Car” was well communicated to and received by

the general public.
• Within two weeks of the Nano’s commercial launch in 2009, its

official websites received 20,000,000 hits. Order applications
reached 200,000 – the biggest sales uptake in the history of
global automobile industry.

The Blue Ocean Idea Index (BOI Index)
BOI Index Tata Nano
Is there exceptional utility? Safe, comfortable, reliable,

Utility Are there compelling
reasons to buy the offering?
+ environmental friendly vehicle that
met Indian families’ desire for upward
mobility at low cost.
Is the price easily accessible Priced at one lakh ($1,984) against

Price to the mass of target
buyers?
+ two wheelers; the cheapest car then
was priced at 2.5 lakh ($4,960).
Tata Nano team achieved the target

Does the cost structure
Cost meet the target cost? + cost through cost innovations and
partnering.
Are the adoption hurdles Employees and partners wee

Adoption
addressed up front? + motivated; the public was ready to
accept the product.

Tata Nano: Disappointing Performance Results
• Sales of Tata Nano failed to meet performance expectations.
• Why didn’t the Tata Nano strategic move unlock huge demand
as expected?
• What went wrong in the execution of Tata Nano’s blue ocean

strategy?

VIDEO
PART III
People Matter:
The People Proposition--
Strengths, Weaknesses and
Consequences
Creating an Aligned Set of Strategy Propositions
VALUE PROPOSITION
The utility buyers receive STRUCTURALIST
from an offering minus the APPROACH
price they pay for it. The alignment of the
three strategy
propositions in pursuit of
EITHER differentiation or
low cost.
PROFIT PROPOSITION
The revenues an organization
generates from an offering minus the
cost to produce and deliver it.
RECONSTRUCTIONIST
APPROACH
PEOPLE PROPOSITION The alignment of
The positive motivations and the three strategy
incentives put in place for propositions in pursuit of
people needed to support
BOTH differentiation
and implement the
and low cost.
strategy.

Aligning the Three Propositions of BOS
Value Proposition
Utility – Price
Blue Ocean Strategy

Differentiation AND
Low Cost
Profit Proposition People Proposition

Employees, Partners and Other
Revenue- Cost Stakeholders
Two Major Challenges for Tata Motors
• Sudden and sharp increase in raw material prices
• Unrest at the Tata Nano manufacturing plant in Singur, led by

Mamata Banerjee, a political opposition leader fiercely against
the Tata Nano initiative.

Sharp Rise of Commodity Prices in 2008

Tata Management’s Response
Employees
•Practiced 3Es to promote cost innovations.
•Broke down silos to leverage expertise and skills.
People Partners •Practiced 3Es to seek continued cooperation.
External
stakeholders
A strong people proposition with regard to employees and

partners supported Tata Motors to overcome hardships and
achieve the cost target.
Political Hurdle and Tata’s Setback
Employees
•Practiced 3Es to promote cost innovations.
•Broke down silos to leverage expertise and skills.
People Partners •Practiced 3Es to seek continued cooperation.
•Won support of local government.

External •Practiced 3Es with local communities.
stakeholders
• Overlooked the political opposition led by
Mamata Banerjee.
Violence and confrontation finally resulted in the relocation

of the Tata Nano plant.
Relocation of the Tata Nano Manufacturing Plant
Singur
Sanand
2100 Kilometers
(1304 miles)

Consequences of the Singur Setback
• Unavoidably increased costs.
• Delayed the production and launch of Tata Nano.
• Compromised Tata Nano’s original value proposition.

• Tata Nano was sold as “another car” in conventional dealerships.
• The perception about Tata Nano changed from “the people’s car”
to “the cheapest car”.

Misalignment of Strategy Propositions and
Consequences
Value Proposition
Utility – Price
X Blue Ocean Strategy X

X
Differentiation AND
Low Cost
X X
People Proposition
Profit Proposition
Revenue- Cost X Employees, Partners and Other
Stakeholders
Reviving Tata Nano – Key Factors to Bring Back
High
Key factors to
Offering Level
bring back
Tata Nano
Low
Comfort
purchase

Tata Nano

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

• Was it strategically priced to capture the target mass of four-

• Did it exercise target costing and hit its cost target?

• Did it effectively overcome hurdles for adoption?

• Despite its initial success, by the time the Nano was

 INSEAD Blue Ocean Strategy Institute 2013

 INSEAD Blue Ocean Strategy Institute 2013

Motor Vehicle Sales in 2009 Passenger Car Sales in 2009

Small and compact

Passenger cars (15%) Other vehicles

 INSEAD Blue Ocean Strategy Institute 2013

The First Second Third

Fun and image

Functional/Emotional Appeal to Buyers

Six Paths Framework

 INSEAD Blue Ocean Strategy Institute 2013

Two wheelers Four wheelers

 INSEAD Blue Ocean Strategy Institute 2013

Models and Colors Easy access to purchase

 INSEAD Blue Ocean Strategy Institute 2013

 INSEAD Blue Ocean Strategy Institute 2013

• High degree of legal and resource

Price Corridor Mid-level • Some degree of legal and resource

Size of circle indicates is proportional to number of buyers that

 INSEAD Blue Ocean Strategy Institute 2013

Rs 30,000 Two wheelers

 INSEAD Blue Ocean Strategy Institute 2013

 INSEAD Blue Ocean Strategy Institute 2013

“And we made another important decision,

 INSEAD Blue Ocean Strategy Institute 2013

• Target costing should be based on:

 INSEAD Blue Ocean Strategy Institute 2013

The Strategic Price

The Target Profit

The Target Cost

Streamlining and Partnering

 INSEAD Blue Ocean Strategy Institute 2013

• Eliminated non-essential • Created a “Suppliers Outreach

 INSEAD Blue Ocean Strategy Institute 2013

• Employees can be skeptical and disaffected.

• Partners can be unconvinced and uncooperative.

• The general public can be resistant and critical.

 INSEAD Blue Ocean Strategy Institute 2013

• Business partners were engaged from the design stage and

• The “People’s Car” was well communicated to and received by

• Within two weeks of the Nano’s commercial launch in 2009, its

 INSEAD Blue Ocean Strategy Institute 2013

BOI Index Tata Nano

Is there exceptional utility? Safe, comfortable, reliable,

Is the price easily accessible Priced at one lakh ($1,984) against

Tata Nano team achieved the target

Are the adoption hurdles Employees and partners wee

 INSEAD Blue Ocean Strategy Institute 2013

• Sales of Tata Nano failed to meet performance expectations.

• What went wrong in the execution of Tata Nano’s blue ocean

 INSEAD Blue Ocean Strategy Institute 2013

 INSEAD Blue Ocean Strategy Institute 2013

Blue Ocean Strategy

Profit Proposition People Proposition

• Sudden and sharp increase in raw material prices

• Unrest at the Tata Nano manufacturing plant in Singur, led by

 INSEAD Blue Ocean Strategy Institute 2013

 INSEAD Blue Ocean Strategy Institute 2013