Lessons to learn from Tata Nano
Oct 16 2013
The Rs 1 lakh ($2,500) Nano car in India was a revolutionary yet disruptive innovation. The price promise meant that that the entire concept of building, designing, engineering and technology of cars had to be thought about afresh and executed under tightest deadlines. As required in novel complex projects with missing links in the ecosystem, the company pooled in best possible collaborations. For example, the German firm Bosch helped develop a number of innovations for various assemblies and components to fit into Nano’s concept of value-for-money.
The execution of Project X3 was breathtaking. In a company, which traditionally has been vertically integrated and has many levels of hierarchy, it meant creating new structures where decision-making was free from bureaucracy. Technologically and engineering-wise, the X3’s outcome in 2008 was almost perfect despite huge design and production challenges, compounded by the Singur problem. (The decision to shift lock, stock, and barrel, a fully automated plant having more than 100 robots from West Bengal, re-establish and start production in Gujarat within 12 months, in itself, has been a massive feat).
Nano is safe, rugged, compact; comfortable inside, and stylish on the outside. Yet, the biggest mystery is that despite excellent performance, the Nano plant is running at just about 10 per cent of installed annual capacity of 250,000 cars at Sanand in Gujarat. Then, what has gone wrong for this revolutionary engineering marvel? The reasons for low public acceptance lie in the softer aspects of customer perception, product positioning, and generated expectations. The car designed, targeted, positioned, advertised and priced as an upgrade for two-wheeler owners with a family of four, was doomed from the beginning. This is a segment that is highly sensitive to price and total cost of ownership. At any price point above Rs 1.7 lakhs (which Nano quickly reached, and has now crossed Rs 2.2 lakhs), the target customer would give a serious thought to buying a bigger, more powerful, air-conditioned, front-engined, time-proven, low-cost alternative of a year-old Maruti or Hyundai.
Another negative perception resulted from the running sound of Nano, which is more like that of an auto-rickshaw. No car owner would like the ‘feeling’ of travelling as if in a three-wheeler.
At least four key lessons from the Tata-Nano story so far. First, the perceptions may vastly differ from factual realties (real merit), but it is the former that shapes consumer psychology. Secondly, markets often function on attributions, and strategists and marketers must always be careful of surprises. For example, the TV images of a few Nanos catching fire in the public, though not necessarily due to faulty design or defective materials, reinforced the subconscious belief that ‘Tatas do not know how to make petrol cars’, or, ‘Tata’s core competence lies in making diesel-powered commercial vehicles’. Thirdly, for a very narrowly (no matter how large) sliced market, it is not only important to deliver value which the customer wants and pays for (and thus it is crucial here to maintain the price line), but also be careful of avoiding something that he does not want. For instance, the tag of owning ‘the cheapest car in the world’ is a joy-killer. Historically, a car is perceived to be more than a transport medium since it has to do with individual (family) emotions and social status. Fourthly, in high-technology products, it is important to manage expectations of flawless performance. The mantra here is to have it right the first time. Otherwise, the danger lies in the product quickly falling into a deep chasm, from which it may become almost impossible to emerge.
To my mind, the ideal design and positioning of the car would have targeted the single (or husband-wife couple), young office goer, who did not want to stand in the bus queue or travel on a two-wheeler in rain, heat, or cold with a helmet. Someone who wished for a safe, affordable, easy-to-park, weather-proof transport, in which he could carry his office files, laptop, gym or sports gear, jacket and other accessories, and of course, the essential tiffin-box with home-made lunch inside it.
Tata Nano is a perfect example that in life, one has to not only manage the hard factual realities, but also care about the softer issues of perceptions and expectations.
(The writer is a professor of strategy and corporate governance, IIM-Lucknow)