Tata Nano: Is Small Always Beautiful? Abstract Auto Expo, 2008 in New Delhi saw the unveiling of the long-awaited 'Peopl

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Tata Nano Is Small Always Beautiful Abstract Auto Expo 2008 In New Delhi Saw The Unveiling Of The Long Awaited Peopl 1 (94.03 KiB) Viewed 52 times

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Tata Nano: Is Small Always Beautiful? Abstract Auto Expo, 2008 in New Delhi saw the unveiling of the long-awaited 'People's car from Tata Motors, which was christened as 'Nano'. This car earns the tag of the world's cheapest car; at a retail price of just Rs. 1,00,000, it is cheaper than a high-end laptop. an Armani suit or an air ticket for two (or one, in the high season) from India to the U.S. But would you drive one? This car is clearly intended for the masses. It is very much the norm for the family of four that would otherwise ride on a two-wheeler, with the father driving, the elder child standing in front and the wife behind holding a baby. Two-wheelers are a relatively unsafe mode of transporting a family in that form. The two-wheeler image got Ratan Tata thinking that there was a need for a safer form of transport. Will the Nano succeed? Tata is already India's largest auto manufacturer with over $7 billion in sales. They have tremendous experience designing the "Indian roads", generally defined as roads with large potholes, dust, tropical weather conditions, and autos that take abuse at the hands of drivers, passengers, and animals. They also have a vast distribution network throughout the country. Those in the West, particularly the U.K., were concerned about Tata's takeover of ultra-luxury brands Jaguar and Land Rover. While the views may be genuine, these concerns can also be a case of sour grapes. Introduction Market-wise, India has eight cars per 1,000 people, compared to 476 per 1,000 in France and 550 per 1,000 in Germany. So there is only one way for car density in India to go: 'UP'. While Tata claims that Nano satisfies all the current environmental standards and is better than the two-wheelers in India, experts claim that emissions are likely to worsen depending on its life. Given the cheap parts of the Nano, there are serious reservations about the car's longevity, particularly because in India, vehicles are supposedly used for eternity. The value-conscious Indian masses are loathed to purchase a new vehicle every 3-5 years the way Western families typically do. The increased affordability of cars means an increased strain on the environment, roads, traffic, etc. The low-cost engineering solutions may force innovations that will one day provide a mode of safer transport for the masses. Perhaps the constraints of low-cost engineering will force other carmakers to consider their own safer, cleaner alternatives. But, can the Nano be blamed for the ills of Indian road infrastructure? Page 2 of 3

TATA nano nano Company Profile Tata Motors Limited, formerly known as TELCO (Tata Engineering and Locomotive Company), is a multinational corporation headquartered in Mumbai, India. It is India's largest passenger automobile and commercial vehicle manufacturing company. Part of the Tata Group, it is one of the world's largest manufacturers of commercial vehicles. The International Organization of Motor Vehicle Manufacturers ranked it as the world's 20th largest automaker, based on figures for 2006. Tata Motors was established in 1945 when the company began manufacturing locomotives. The company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969. Tata Motors was listed on the NYSE in 2004, and by 2005 it was ranked among the top 10 corporations in India, with annual revenue exceeding Rs 320 billion. The company unveiled the world's cheapest supermini car, Nano, during the Auto Expo 2008 exhibition in Pragati Maidan, New Delhi. And this launch has created a consumer revolution of sorts. What would be the Nano-effect? If we take a page from the stories of Apple or Sony, what Apple iPod or the Sony Walkman did to the electronics industry, probably Nano would do to the automobile industry. What Air Deccan did to the airline industry, making travel by air affordable for all, it is expected that Nano would do the same to the automobile industry. Tata Motors has made and kept all its promises before. When designing India's first indigenous car, the Indica, Ratan Tata, has promised consumers "a car with Zen's size, the Ambassador's internal dimensions, and the price of a Maruti 800". And he delivered. Small Car Concept A compact' (North America), 'small family' (European) or 'C-segment car is a classification of larger cars than a supermini and smaller than a large family car. Small cars were being manufactured earlier too. But none of the global majors had paid due

attention to the thought of an all-new small car. If there was any effort, the efforts were between scaling down a big-sized car to a viable small size and creating one. The requisite processes involved must be richer in innovation and bolder in imagination. It has to be a product that has been radically re-engineered to access a new set of customers and at the same time meet international safety standards. The majority of growth in the global automobile industry in the coming decade will come from emerging economies such as India, China and Eastern Europe. And the largest contribution to the growth of the auto market in these countries will be the fast-growing small car segment. The increasing disposable income of the middle-class population is the key driver of the small car market in developing nations. However, in developed regions like the U.S. and Western Europe, stringent environmental standards increase the need for more fuel-efficient cars. India is likely to evolve into a global hub for small-car manufacturing. Currently, India is one of the largest producers of small cars, with the small car segment accounting for about three-fourths of the Indian car market. The fast-growing small-car market has encouraged several global auto companies (Renault, Nissan, Toyota, Hyundai) to announce plans for the launch of small cars in India. With the launch of Tata Nano, the stage is set for around a dozen new small and compact cars to be launched in India in the coming years. But how minimal can minimalist be? After all, this is a Tata Car, which means a lot of space. The Nano is wider and taller than a Maruti 800; it is wider and taller than an Alto. Since space has been used more effectively and the Nano doesn't have a nose section like the distinctly 800 or Alto, the car is around 20 cm shorter than an 800. Still, the space available to the passengers is 21 percent more than a Maruti 800. Fortune at the Bottom of the Pyramid A one-lakh car is unlikely to be sold in the U.S. But Nano wouldn't be aimed only at India, either, Ratan Tata says. Bottom of the pyramid markets like Africa, Southeast Asia and maybe eastern Europe and Latin America, wherever income levels mirror India's, would be the best fit. The Nano represents a critical inflexion point in the global auto industry and the evolution and maturation of the Indian industry. This excitement is because Tata Motors has introduced the global auto industry to a new consumer segment. This emerging consumer base worldwide will be a significant engine of global growth. The Nano is an attempt to shed light on leveraging emerging markets as innovation hubs. Indians constantly complain about constraints, but these constraints can be used as levers for breakthrough thinking. Tata Nano's birth was a result of self-imposed constraints: (1) Price: Rs100,000 (a significant change from the lowest cost car in India and elsewhere in the world). This constraint is critical to creating a new consumer market- the emerging middle class in India and other India-like markets.

(2) Scalability: This market is large and scale is critical to meet the price- performance targets and satisfy the customer base. (3) Aspirational: The design and features must be such that it is aesthetically pleasing and desirable. It must represent smart basics and not crowd the offering with features that do not represent core value to the customer base. Year Low-Cost Breakthroughs Car Horsepower Price (Approx) Model T 20 $ 19,700 Beetle 24 $ 11,333 Mini 34 $ 11,777 Nano 33 $ 2,500 1908 1965 1961 2008 (4) Resource-efficient It must be efficient in using resources capital, raw materials and energy. This is the same as Henry Ford's with the Model-T in 1908. The crux of the concept lies in the "Fortune at the Bottom of the Pyramid" theory propagated by CK Prahlad, which holds that companies can make the most money by penetrating the mass market. On the one hand, the car meets a number of the criteria C K Prablad outlined in his famous book on how companies can reinvent their products to serve the poorest people in the world. He said that companies should find ways to modify their products to provide quality goods in a way that would radically reduce unit prices. That is very much what Tata has done. It has certainly lowered the barriers to entry for the Indian middle class. But in India, there are still only ten cars for every 1,000 people. There is a long way before they catch up with China, which has 40. Tata's strategy is similar to what happened in the personal computer industry. Initially, P.C.'s were considered high-priced business machines made by select manufacturers. Players such as Compaq and Dell multiplied the size of the market by turning P.C.'s into assembled, cheap units that could be afforded by middle-class families, who began buying P.C.'s to replace electronic typewriters, board games, etc. Market Segment In the Indian car world, the more affordable a product, the broader the appeal and greater the number of potential customers it has. And the Nano represents this philosophy. Tata identified a segment that was hitherto ignored by others. It focuses on converting the two-wheeler owners into four wheeler owners. It would also take away the segment of pre-owned cars and convert them into owners of new cars. It plans to do this by offering it for a minimal sum of one lakh. Other car owners with a wider portfolio of cars can benefit from a radical but relevant offering. Such manufacturers

can reap from the economies of scale that can be obtained from sharing the costs of design, manufacture, and retail among their entire product line-up. Ratan Tata says his strategy is the same to create a low-cost design and get it assembled on the cheap so that the car be afforded by middle-class families, who will begin buying it in place of the two-wheelers they currently use. Emerging markets are fertile ground for innovation. The challenge of reaching dispersed, low-income consumers in emerging markets often spur significant innovation. Western executives should be careful about compartmentalizing the impact of these innovations on the edge of the global economy. These innovations will become the basis for 'attacker' strategies that can be used to challenge incumbents in more developed economies. What's initially on edge soon comes to the core. (Tata) Nano Technology How could Tata Motors make a car so inexpensive? It started by looking at everything from scratch, applying what some analysts have described as "Gandhian engineering principles- deep frugality with a willingness to challenge conventional wisdom. The entry-level model is missing many features that Western consumers take for granted- air conditioning, power brakes, radios, etc. The Nano is also much lighter than comparable models due to efforts to reduce the amount of steel in the car (including the use of an aluminium engine) and the use of lightweight steel where possible. The car currently meets all Indian emission, pollution, and safety standards, though it only attains a maximum speed of about 65 mph. The fuel efficiency is attractive- 50 miles to the gallon Hearing all this, many Western executives doubt that this new car represents real innovation. Too often, when they think of innovation, they focus on product innovation using breakthrough technologies, often specifically on patents. Tata Motors has filed for 34 patents associated with the design of the Nano, which contrasts with the roughly 280 patents awarded to General Motors. Admittedly that figure tallies for all of G.M.'s research efforts. Still, if innovation is measured only in terms of patents, no wonder the Nano is not of much interest to Western executives. The Nano is constructed of components that can be built and shipped separately to be assembled in a variety of locations. In effect, the Nano is being sold in kits distributed, assembled, and serviced by local entrepreneurs. Competition There is no competitor in this segment at present. It's a vacant slot that the Nano tries to fill. However, soon competitors will flood the market with their product offerings. One such instance is that of Bajaj. Bajaj Auto was among the early birds in the quest for a small car and had raised capital through a global depository receipt in 1994. Subsequent discussions with Chrysler and Renault were called off. For decades, Bajaj Auto produced two-wheelers used like a family car and even christened Chuonu Muany de Pappa di Gaddi. So it is natural that as Indians upgrade from two-to four-wheelers, Bajaj should build a prototype that will fit Chunnu Munoy, their Mom and Papaji.

Bajaj plans to manufacture a small car called "Lite'. The small car will be manufactured in collaboration with Renault and Nissan and is expected to cost a little more than one lakh. Although the product is ready in its prototype form, it is expected to be produced only in 2010. The exact price and specifications are not declared yet. The car is expected to be offered in both diesel and petrol engines. It would also conform to all the emission and safety norms. Considering the fact that Bajaj is known for having a good R&D with a focus on performance, reliability and economy, the car is expected to be fuel-efficient Let's wait and watch Tata Nano has been considered an innovation platform. The challenge for the company and all associated with it is to rapidly and continuously innovate around the platform as an ecosystem of suppliers and dealers. The features and functions will quickly evolve based on consumers' experiences and feedback from the market. Both the company and consumers will learn. One big issue is whether the Nano will put a car in every family's front yard. We seem to forget that Rs 1 Lakh cars (and cheaper) have been available in India for quite some time now. They are called 'used cars' or 'pre-owned cars. These days we can get an air-conditioned car in reasonably good shape in less than one lakh rupees. Yet, the two- wheeler users have not shifted to car use. The primary reason can be the monthly cost of running a car, including monthly loan payments, insurance, periodic servicing, maintenance, and repairs of dents and damages. That is why the two-wheelers, with low maintenance and running costs, don't seem to get displaced by cheap cars. Also, despite being a hazardous mode of transport, two-wheelers are still attractive for young people because of the ease of parking and manoeuvrability in transport The power of this innovation to shape the global auto industry is forcing a debate already, including in India. Can the dream of creating a car that will sell for less than an expensive mountain bicycle price disrupt the auto industry almost as much as Henry Ford's introduction of the first mass-produced car, the Model-T, did in 1908? What about pollution? Congested roads? Poor infrastructure? But is this the right starting point for debate? What if we devoted the same energy and ingenuity to solving the problems of discipline in traffic management? In energy efficiency? These problems may lead us to breakthrough innovations. And we should be glad that the debate has started. That is a good sign. What do you think? Is the entry of Budget Cars' a signal that two-wheelers face a dead end? Is the Nano a 'Car of the Future? Would YOU' drive one? (This case is written by Dr Yasser Mahfooz and Dr Salma Ahmed, lecturer and reader respectively at the Dept. of Business Admo. Aligarh Muslim University. Aligarh.)

Answer ALL Questions QUESTION 1 What is the value proposition of Tata Nano? (10 marks) QUESTION 2 By applying the "Segmentation, Targeting and Positioning (STP) Model related to the marketing strategies of Tata Nano. (30 marks) QUESTION 3 Using Porter's Five Forces Model, explain how Tata Nano can sustain its business against its competitors. (20 marks) QUESTION 4 If you intend to purchase Tata Nano, describe the stages in the purchase decision process. (30 marks) QUESTION 5 In your opinion, will the Tata Nano succeed? Why? (10 marks) -END OF QUESTIONS- Thank you, and good luck!