CASE STUDY : TATA NANO

[Term paper towards the fulfillment of the CA I in the subject of Corporate Finance]

Assignment

Corporate Finance

Submitted By: Submitted To:

Suvigya Tripathi Ankit Srivastava

B.A. LL.B. [Business Law Hons.] Asst. Professor, Faculty of Law

Roll No. 1367 [Semester IX] National Law University, Jodhpur

National Law University, Jodhpur

 ABSTARCT

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1
per cent of the country's Gross Domestic Product (GDP). The Two Wheelers segment with 80
per cent market share is the leader of the Indian Automobile market. Tata Motors Limited is a
leading global automobile manufacturer of cars utility vehicles buses trucks and defence
vehicles. Tata Nano popularly known as people‘s car was launched at such time when India‘s
largest car company known for its cost effective products Maruti Suzuki was pondering upon
the strategic option of discontinuing the production of the than available cheapest car of
Indian Market and it flagship product Maruti Suzuki 800. This case is selected as per
following basis: Case is related with marketing Mix, positioning of the product and brand
equity, to understand what went wrong with Nano, to understand the concept of Positioning, to
understand how marketing mistakes makes a product to failure, to find alternatives for the
solutions.

1. INTRODUCTION

Tata Motors Limited is a leading global automobile manufacturer of cars utility vehicles buses
trucks and defense vehicles. As India's largest automobile company and part of the USD 100
billion Tata group Tata Motors has operations in the UK, South Korea, Thailand, South Africa
and Indonesia through a strong global network of 76 subsidiary and associate companies
including Jaguar Land Rover in the UK and Tata Daewoo in South Korea. In India Tata
Motors is a market leader in commercial vehicles and among the top passenger vehicles
manufacturers with 9 million vehicles on Indian roads.

The Tata Nano manufactured by Tata Motors made and sold primarily in India. The Nano was
initially launched with a price of 100,000 rupees which has increased with time. Designed to
lure India's middle classes away from motorcycles, it received much publicity, but the sales
expectations were not met. Multiple issues like factory relocation from Singur, cases of Nano
catching fire, and the perception of Nano being unsafe and lacking quality due to cost cutting
led to the decline of sales volume. As compared to Tata Motor's aspiration of 250000 unit
sales annually at the time of launch, sales in FY 2016-17 were 7591 units only. The car is a
 loss making product for Tata Motors as disclosed by former Tata Sons chairman Cyrus Mistry.
Tata Motors has confirmed that despite no demand the production of the car will continue for
some more time due to the emotional connect of the product with the Tata Group.

2. JUSTIFICATION OF CASE TITLE

Title of This Case Is ‘Positioning Disaster of Tata Nano: A Case Study on Tata Nano’
Before Tata Nano was launched in the market it was its name was almost in all the mouth of
the people ‘Nano the cheapest car in the world’. Even the president of the America Barack
Obama has praised Tata Nano because of that tata nano was all over in the market before it
was launched in the market.
Tata NAno was widely known as ‘Cheapest Car in the World’ but this is the main reason why
Tata have suffered many problems in the market. Here people did not take cheap car in sense
of plow price but they take it as cheap in sense of quality. Here Tata Nano has failed to
position itself in the market or you can say that it was wrongly positioned in the market and in
the minds of people.
This case is selected as per following basis:
1. To understand what went wrong with Nano.
2. To understand the concept of Positioning.
3. To understand how marketing mistakes makes a product to failure.
4. To find alternatives for the solutions

3. CASE ANALYSIS
Tata Motors Ltd. is India's largest automobile company. Its latest passenger car Nano remains a
modern-day symbol of India's ingenuity. This was an outcome of a deep understanding of
economic stimuli and customer needs, and the ability to translate them into customer-desired
offerings through leading edge R&D. The seeds of this innovation were sowed in the mind of
Ratan Tata, chairman of Tata Motors Ltd. when he saw a family of four crammed on a
twowheeler on wet roads of a rainy day. The child was standing in front, with his mother riding
pillion while holding a baby. He felt a strong need to provide them with a secured and affordable
vehicle- a people's car. Tata primarily aimed to serve the needs of those at the bottom of the
pyramid who so far could afford a two-wheeler but not a car. This car was proposed to be less
than half the price of the cheapest car available in India and, indeed, anywhere in the world. This
way Tata envisioned to create a 'new market for cars which does not exist', making them
accessible to India's middle classes growing at around 9 per cent a year. However, there was a
huge difference in switching cost from a two wheeler to a car. The announcement of Tata Nano
aimed to reduce this gap, with a target sales price of 2,200 USD, thereby making the shift easier
for the bottom of pyramid. Tata's dream project took off in the year 2003. The idea was to
develop an innovative, attractive and cost-effective means of transportation for the
underprivileged while balancing the customer's expectations and meeting the regulatory
requirements. Innovation with new market segment requires major process reengineering which
has to be accepted by the customers. Tata tried new design of Nano to keep the cost low. In order
to ensure a spacious interior, lower weight and low costs, engine was strapped in the car's rear,
with front wheel drive and the petrol tank to the front. This made the car more low-cost, efficient
and compact. A lot of fibre and plastic were used instead of steel to keep the weight of the car
low. No radio, power windows, air conditioning, anti lock brakes, air bags, remote locks or
power steering were part of the car. aWEshkar Vol. XIX Issue 2, Sept 2015 WeSchool 90 A Peer
Reviewed Research Journal New Market Creation via Innovation: A Study on Tata Nano Rear
wheel drive had manually actuated 4- speed trans-axle that gives the car better fuel efficiency. It
had strong wheel bearing to drive the car at 72kmph. Finally, Nano was produced in three
variants- standard and two deluxe models with AC. Tata Nano was built without any
compromise on quality, emission and safety standards. A development, which signifies a first for
the global automobile industry, Nano brought the comfort and safety of a car within the reach of
thousands of families. Nano was launched with great fanfare at the 9th Auto Expo held in New
Delhi fulfilling the dream of millions of Indians of owning their own car. At its price, it was
quite proportionate and well styled to comfortably seat four adults. The major targeted segment
was bottom of the pyramid with two wheelers, who aspired for a four wheeler which was beyond
their pocket. As this product offering was first of its kind for this segment, easy acceptability
could come when communication was designed specifically for them. Hence, novel ways of
marketing which were never associated with passenger car vehicles were devised. In order to
keep their communication campaign innovative yet cost-effective, Tata advertised through print
medium and radio. Other strategies included- online Nano games, Nano chat rooms, Nano
conversations on facebook, orkut and blogs, Nano pop-ups on major websites launching Nano
merchandise like baseball caps, key chains, and T-shirts etc. The Tata group also channelled
marketing efforts through, Tata Sky (satellite television) where new customers could obtain a
special 20 per cent discount on their satellite connection by submitting their booking proof for
Tata Nano at any authorized dealer. In addition, Westside, the Tata group-owned lifestyle retail
chain, advertised Nano through text messages to customers 1. The distribution network of Tata
Nano was also very different from contemporary one. Lower income customers were
apprehensive and hesitant to walk into large Tata Motors Ltd. showrooms. It was also sold
through its own retail and electronics megastore (Westside and Chroma) outlets as well as auto
dealerships. In order to get substantial demand from the remotest corner of the country, the sale
of form for booking were facilitated through 18 preferred banks / Non-Banking Financial
Company (NBFCs). New insurance schemes were co-designed with five partner insurance
companies to enhance the sales and service network for better reach and service to the customers.
The prospective customers had to book Nano with INR 3,500 with the banks. From the bookings
a lottery system was adopted to select customers for delivery of cars. Taking cues from
customers' responses they introduced some better strategies to woo more customers. They
launched low-key access sales points called 'F Class' showrooms that display just one car. In
order to reach smaller towns, they have set up special Nano access points to experience and test-
drive the car 2Zero per cent finance schemes with 4-year extended warranty and a maintenance
contract of INR 99 was introduced to boost customer confidence. Even with small hiccups of
Nano catching fire, the company gained back the confidence of customers by installing
additional safety features as a retrofitting exercise in the 70,000 Nanos already sold. The
company has made a tie up with value retailer Big Bazaar to bring touch and feel experience to
the customer. This case study helps to understand the macro picture of how innovation of Tata
Nano helped create new market for bottom of the pyramids. In order to find out whether this
innovation is sustainable it was important to explore its acceptability within its targeted segment.

1
Wells, 2010
2
E.T. Bureau , 2010
 4. PROBLEM OF CASE STUDY

Followings are the various reasons behind the failure of Tata Nano.
Business is all about 4P’s i.e. Price, Place, Promotion, Product and in case of Nano , none of
these was placed correctly.
Nano failed as a Product:
A product should be targeted at the prospected customer, keeping in mind their needs,
expectations, requirements etc. Nano was a big fail here:

(i) Failed in Customer Expectations:

Indian customers require products which would be an aspiration to neighbors, In short we want
an Item which would be “Neighbors Envy Owner's Pride “.

(ii) Failed to understand demands:

People expected a Good Car, which can compete with Market leading cars on price and
features, What Nano was is just a utility vehicle and in the segment where a person would be
confused between a good bike or a Cheap Car.

(iii) Failed to understand the Targeted Use:

Indians wanted a car which would be spacious for his family, Nano failed here
comprehensively. The space was just not enough for an average Indian family consisting of 5
members.

• Price:

Price should be fixed as per promised, Tata Nano promised to give the cars at 1 lac but then it
raised its price from 1 lac to 1.2 lac and then 1.5 lac.

• Place:

It has neither speed nor power, nor build to handle highways and muddy roads. This car fails
miserably while climbing highlands.
• Promotion:

Company promoted this product as a “Cheap car”. This hurts the Ego of Indian middle class
buyers.

• Inability to manage PR.

Everyone got to know of the incident where a Nano caught fire; no one got to know, how
many Nanos are running beautifully. And as it stands, the targeted segment for the car were
the first time buyers, who get easily thwarted by such news. Thus, managing PR is very
important.

• Initial waiting period

Initial waiting period which was too high, making several customers go away empty handed
when they could have potentially flooded the market.

5. FINDINGS AND PROPOSED SOLUTIONS

1. Make complete market analysis

They should Analyse the market based on the consumer expectations, need, requirement.
Indian people buy cars to show off their status. Tata Motors should put some good features
and improve Nano's looks.

2. Redesign Nano's structure

In India the problem of rough roads is very hard tata nano have small wheels which are ment
only for riding in good roads , so they should redesign the structure of car and put big wheels so
that it could run smoothly on muddy roads.

3. Try to remove the wrong impression of 'Cheap car'. (Repositioning strategy)

Indian people are very sensitive they buy cars to show off their success; here 'cheap car' was
interpreted as 'cheap in quality'. Tata Motors should remove this wrong impression of tata
Nano.
 4. Train the marketing team or hire more skilled marketing team.
When there was an accident that tata nano was burning, the marketing team of tata nano could
not revolve that problem. So they should provide more training to the marketing team or hire
more skilled marketing team.

5. Integrated Marketing Communication tools.

To effectively use the Integrated Marketing Communication tools like Advertising, Promotion,
Event marketing and sponsorship, Public Relations and publicity

6. CONCLUSION
The failure of Tata Nano present with a great lesson for all the marketers the car was positioned
as a symbol of social liberty and equality. It was positioned as dream car of common man of
India. It was targeting the laymen who want to have a car and it got successful to some extent but
only till a functional level. The Nano made sense in terms of a social mission, on a purely
functional level. Good quality engineering focused on the task of making something reliable and
safe as cheap as possible. Sell it to people with not much money. But it has been criticized all
around as the one to the greatest positioning blunder as even the most cost effective producers do
not label their products as cheap. Here the cheap has a great social connotation and the social tag
because nobody aspires to buy the cheapest thing on the market, and driving around in a car is as
big a statement as you get to make. Human psychology is that the motivation behind buying isn't
to have a car, or a shampoo, or whatever the product is. If a product is positioned as poor‘s
product then poor people will definitely avoid it because they don‘t want to be viewed as poor
yet. The marketer just need to place their product right in the minds of customer and the brands
like Giorgio Armani, Raymond‘s, Toyota and even other brands of Tata are examples of that. So
positioning remains the main mantra behind the success of any product. Automobile industry
should focus on optimal utilization of physical resources, cost – reduction, waste minimization,
harnessing of new technologies & value addition in products. · Value engineering circles (like
quality circles) should be established in every factory and top management must give priority to
value engineering projects to realize their full potential.
REFERENCES

1. https://www.iosrjournals.org/iosr-jbm/papers/ies-mcrc-icscm/Part%205/47
2. Avinash Nair : Two years on, Tata Nano sales yet to hit top gear Ahmedabad, Thu Apr 26,
2012, 02:40 hrs as retrieved from http://archive.indianexpress.com/news/two-years-on-tata-
nano-sales-yet-to-hit-top-gear/941736/ on 28/09/2014
3. Ratan Tata-, A Promise is a Promise, as retrieved from
http://www.netbhet.com/2009/04/promise-is-promise-ratan-tata.html on 24/08/2014
4. Parthasarathy, M., Stansifer, M.L. and Kumra, R. (2010), "A longitudinal exploratory study
of changing perceptions towards an iconic brand in a developing country", Journal of Indian
Business Research, Vol. 2 No. 3, pp. 138-152.
5. Narvekar, R. S. and Jain, K. (2006), "A new framework to understand the technological
innovation process", Journal of Intellectual Capital, Vo. 7 No. 2, pp. 174-186.
6. Bellman, E. (October, 20, 2009), "Indian Firms Shift Focus to the Poor", The Wall Street
Journal.