PEOPLE’S CAR TO COOL PEOPLE’S CAR– A JOURNEY (CASESTUDY)

People's car to cool people's car– A journey
(Casestudy)
Dr. N. Srividya
V. N. Sreedhar

Dr. N. Srividya is pursuing her Post Doctoral Fellowship Programme for
Women under UGC at NCE, Bengal, Jadavpur University, Kolkata. She has
completed her B. Tech in Civil Engineering under Nagarjuna University and
MBA under Madras University at Vellore Institute of Technology, Vellore.
Later, she finished her Ph. D under Vinayaka Missions University in the
stream of HRM.
FROM THE BEGINNING, SHE IS A MERITORIOUS STUDENT WITH BRIGHT ACADEMIC
BACKGROUND. SHE HAS TEN YEARS OF EXPERIENCE IN TEACHING FIELD WITH A VAST
EXPOSURE TO MANY CITIES IN INDIA LIKE BANGALORE, CHENNAI AND KOLKATA.
CURRENTLY SHE IS WORKING ON THE PERSONALITY ASPECT IN THE ORGANISATIONAL
BEHAVIOUR AS PART OF HER POST DOCTORAL PROGRAMME.

V.N. Sreedhar MCom, MCA is an IT Professional, has got a diverse career
graph with rich 15 years experience in the areas of IT Application and
Services Delivery Management, IT Strategy Planning, Business and IT
Consulting, and has got Experience in Handling End to End Deliveries of
high value and critical Projects. 

Abstract

This paper deals with the car very much-hyped in India right from its
inception and manufacturing. But soon after its launch, it faced many
challenges in various aspects. It has created a revolution in the auto
industry itself that everybody can afford a four-wheeler. This paper in
detail studies the manufacturing process, the reasons for its failure and
the efforts of the company to rectify that. It is actually the world's
cheapest car but faced initial failure. The features of the car, the
strategies adopted by the company to manufacture this car and how the
competitors should response to it, all are discussed in detail in this
paper. Now, the company is again repositioning and revamping the car to
appeal its customers. The various strategies adopted by the company in
this process are mentioned in detail. This is about the journey from
peoples' car to cool peoples' car.
Keywords: Tata Motors, NANO Car, Failure, Positioning, Revamping,
Competition

People's car to cool people's car– A journey
(Casestudy)

1.1 Introduction
Nano is the world's cheapest car manufactured by India based Tata Motors.
It was launched on March 30, 2009, with a price tag of INR 100,000 (about
US$ 2,000). The car was the result of extensive research and innovation
carried out by Tata automobiles. This car was developed using a clean
sheet approach to reduce the costs and number of the components while
ensuring the quality.
This case discusses the journey of repositioning Tata Nano from its image
people's car to cool peoples' car.
2.1 Tata Motors
Tata Motors is the largest automobile company in India and the second
largest in passenger vehicles market. It is also the leader in commercial
vehicles in each segment in automobile industry. In the global arena, the
company is the fifth largest medium and heavy commercial vehicle
manufacturer and the second largest medium and heavy bus manufacturer. The
company was established in 1945 and its first vehicle was rolled out in
1954. The company is known for its better understanding of customer needs
and the ability to translate them into customer-desired offerings. Perhaps
this is the reason to build a low cost car targeting the bottom of the
pyramid customers.
Infact, this is not the first time to think about a low cost car the
segment. Henry Ford had promised to build a car for the great multitude
and produced more than 15 million Model Ts with unprecedented mobility for
consumers. But, in India, this may be the first time.
To fulfill his promise, Henry Ford exploited innovative product design,
vendor relationships, manufacturing techniques and distribution methods. A
century later, entrants in the segment called ultra-low-cost- car market
have the same agenda, to build a car with a price tag of $2,500 to $5,000.
But this is not an easy task with uncertainty in future with frequent
recessions and the fluctuating market demand. High fuel costs, low
consumer confidence and lack of sufficient capital or consumer financing
add fuel to it. But with innovativeness and low cost solutions such a car
can be made with a new and improved operating model. Perhaps the launch of
ultra-low-cost-car is the result of all these. In the long run this ultra-
low-cost car has ample opportunities and of course high risks in the
industry. The market players may find themselves to participate in this
new emerging market. Both the manufacturers and suppliers need to work and
partner willingly to change the traditional operating paradigms.
3.1 What to do? Strategic Decision
The competitive world is changing dramatically and permanently. Many
companies are coming forward to build small cars with less operating costs.
General Motors Spark, Hyundai, Renault S.A. –Nissan, Skoda Auto, and Fiat
announced various models in India with low cost cars.
With traditional design, manufacturing and distribution approaches building
a low cost car with reasonable margins and are easily susceptible to rising
commodity prices, product launch missteps and market economics. In the
current scenario two options are there either exist in the traditional
business or to participate in the emerging low cost cars business. But as
the competition increases, the other players of the traditional market are
also needed to shift to this market. But the first movers always gain more
and enjoy the customer loyalty.
As the traditional marketing strategies do not apply here, the
manufacturers and the vendors need to adopt a clean-sheet approach. Tata
Motors applied the same to build Nano, the world's cheapest car with four
principles.
a. Align across functions and collaborate with suppliers
b. Invent rather than adapt
c. Reduce the number and complexity of parts
d. Standardize at every stage of the value chain.
e. Distribution model
a. Align across functions and collaborate with suppliers
Tata began the process with 600 closely integrated suppliers out of which
only 100 remain. These independent suppliers provide 80 percent of the
components and 97 percent of the vehicle is sourced in India. Suppliers
like Bosch worked with Tata and Indian engineers are employed with
motorcycle rather than automobile to design the innovative low-cost
components.
To deliver a car priced one lakh and to meet local market specifications,
emissions and safety standards require new product innovations and many
more such as:
Forming new organizations dedicated to the creation of an ultra-low-cost
car
Redesigning processes and policies so the entire team works toward common
goals
Revamping incentive structures to manage conflicts and balance trade-off
decisions
Expanding supplier-selection criteria to include innovation and product
diversification
Partnering with suppliers early in the design, manufacturing, engineering
and assembly processes
b. Invent rather than adapt
Tata encouraged its design and manufacturing engineers to be innovative to
redesign the parts for a simple and less capital-intensive manufacturing
process, and develop a new ways to market and distribute the Nano. Infact,
suppliers are forbidden to adapt carry-over parts of the other vehicles of
Tata. In some manufacturing operations, such as welding, engineers opted
for cheaper manual processes rather than the automated ones.
c. Reduce the number and complexity of parts
Tata focused on the creativity to make the components smaller, lighter and
cheaper. It totally avoided non-functional and non-essential parts. Fr
example, Bosch adapted a smaller and lighter motorcycle starter in Nano and
the wheels are attached with only three lug nuts to reduce the cost.
d. Standardize at every stage of the value chain 
Nano offers consumers few options and thereby has a limited impact on the
manufacturing process.
e. Distribution Model
Tata adopted an innovative distribution model. The company planned to
mobilize large numbers of third parties to reach rural consumers, tailor
the products and services to serve their needs, and add value to the core
product through ancillary services. For example, a vehicle produced in a
plant is sent to a number of mini-factories. The company set up these mini-
factories strategically and central warehouse stocks the spare parts and
accessories. Finally the Nano will be assembled and delivered to the
customer.
Because the low cost parts are used, the margins gained are very limited.
Moreover, if the prices of the components rise, obviously the over all cost
increases. Anyway the success depends on the sales of the car that makes
the profit.
4.1 The alternate Strategies
Apart from the clean sheep approach that was adopted by Nano, there were
other alternate strategies also to make the low cost car.
1. Introduce older models into the market
2. Streamline the existing the models
3. Design a new low cost car
With the first strategy the advantage is that the fully paid-up base of
equipment and tools can be used. But the cars do not meet specific
customer needs and are at a competitive disadvantage in relation to locally
tailored products.
With the second strategy there is a flexibility to fit low-cost
prerequisites or redesign select parts to meet specific market
requirements. It offers customization but limits the potential for cost
reduction.
Finally with the third one, some manufacturers design a new car with a
design-to-cost framework, but use many existent spare parts or components.
This hinder the creativity and but minimizes the engineering costs and
maximizes the economies of scale.
5.1 Create entrance and growth strategies
For many manufacturers, India is first option to build and sell their
products. But now many of the manufacturers have plans to grow beyond
India as well. The options are Asia-Pacific region, Thailand, Middle
Eastern and Africa in the globe.
6.1 Protect and preserve market position and profits
To become success in this segment the manufacturers and suppliers need to
employ their know-how in the higher-cost vehicle segments, including vast
experience in emerging markets, product innovations and cost structures.
Those companies, which are in traditional car making, need to protect their
market share of their current brands. Risk will be there in the following
cases:
1. After meeting the safety and emission standards, the low cost cars are
exported and distributed to mature markets.
2. Manufacturers adopt a new set of target prices from low cost car
innovations and expect suppliers to comply.
3. A manufacturer enters the market but cannibalizes its existing
portfolio.
4. A competition generates "know-how" that gives them an early-mover
advantage in the market.
Whatever may be the situation the competition is inevitable and to deal the
competition first they should know their capabilities, product plans,
partnerships and target costs. To become successful it is essential to
maintain the volumes and to have a flawless launch cycle. It is also
important to predict that the time required to the competitors to adopt
their product.
7.1 Benchmark the competition
When benchmarking and competitive tear-downs the companies should go beyond
the competitive industry, but they to compare with the two-wheelers and
rickshaws too to get more innovative and creative ideas and to employ
systematic approach.
8.1 A Measure of Cooperation, Creativity and Innovation
Success in any field can be achieved by mere cooperation, creativity and
innovation
9.1 The Making of Tata Nano
Tata Nano is a proposed city car — a small, affordable, rear-engined, four-
passenger car aimed primarily at the Indian market.
9.2 About Plant
Investment of 1500cr. rupees by Tatas. Shifting cost of the plant from
singur is around 500 cr.
Total area of plant is 1000 acres out which 300 acres were allotted for
assembling of various parts and rest 700 acres for manufacturing.
9.3 Aim of Making (Rationale Behind the Scene)
The project is to create the world's cheapest car to enable the transport
of numerous Indian families by four-wheeler.
Tata Nano is not just about low-cost, but also about high technology.
Tata Nano has fundamentally implemented the 'Forget, borrow, learn'
model of innovation.
The Tatas realized that for a poor country like India, there was a
need of an ultra low-cost product and offered it by leveraging the
power of technology.
Once it has become successful in India, there is a potential in US
also, if it is further enriched with high technology to make it
intelligent car.
9.4 User-Centered Innovation
Tata Motors developed a car, keeping customer in mind and it was defined by
the company as ' a comfortable, safe, all-weather car, high on fuel
efficiency and low on emissions'.
9.5 About Tata Nano
After having successfully launched the low cost Tata Ace truck in 2005,
Tata Motors began development of an affordable car that would appeal to the
many Indians who drive motorcycles. 
Six years after Tata Motors chairman Ratan Tata announced his dream of
building a "1-lakh," or 100,000 rupee (roughly $2,230) car, the first Tata
Nano rolled on stage in March 2009 accompanied by the fanfare from Richard
Strauss's Thus Spake Zarathustra. Ten-feet-long and egg-shaped, with a
roomy interior but dinner-plate-sized wheels and a lawnmower engine, the
Nano gets some 56 miles per gallon—on par with the electric hybrid
Chevrolet Volt. And its emissions are considerably lower than the typical
Indian motorbike or auto rickshaw, which both spew noxious black exhaust.
Tata's rivals had repeatedly claimed it couldn't be done. But his engineers
discovered they could save room by putting the engine in the back, save
money by sticking the battery beneath the seats, and save steel by using
custom-made parts. It was more than just a cheaper car; it was a radical
rethinking of how to build one. As innovations go, the Nano was arguably a
greater achievement than the $40,000 Volt.
C. K. Prahlad, the management guru stressed the need for creating business
for the bottom of the pyramid. Nearly four billion strivers live at the
bottom level and their number is too huge to ignore. He encouraged the
businesses to work on the constraints price, performance, scale, and
resources to meet their demands by innovating new products. With the same
inspiration, the people's car made mobility of people more easy and
accessible for all the walks of the people. With this the number of
vehicles on the roads may increase vehemently.
10.1 Characteristics of Nano
10.1.1 Cheap
It is the world cheapest car: 1 lakh for the standard model. Due to this,
it is considered as the "People's Car".
10.1.2 Fuel-efficient Engine
Its mileage is 20km/l. The luxury model has a diesel engine.
10.1.3 Safe
Nano features feat with all safety requirements. The car contains a strong
passenger compartment with crumple zones, intrusion-resistant doors, seat
belts, strong seats, and anchorages. It had passed a full frontal crash
tests. Moreover it is a safer way of transport than motorcycles and
rickshaws.
10.1.4 Comfortable
Nano has been conceived for four persons. Its space is adapted according
to this. Four doors enable the entrance in the car. Seating space is
generous and quite comfortable. It permits the driver to manoeuver easily.
Besides, the car will be available in two models: standard and deluxe.
Tata Nano engine in trunk is only accessible from inside as a cost
reduction feature.
Tata Nano dashboard is very simple. CD player and radio are on this deluxe
model. The car's exterior and interiors were designed at Italy's Institute
of Development in Automotive Engineering. The Nano CNG emax is launched in
October 2013. It can run on either gasoline or compressed natural gas.
Initially, it is sold in Delhi and parts of Maharashtra and Lucknow, where
CNG is available at fuel outlets.
10.1.5 Ecological
Nano met all current legislative emission norms and could be upgraded to
meet euro IV norms. It is less pollutant than two-wheelers being
manufactured in India.
10.1.6 Trendy
Both versions of Nano (standard and deluxe) will be available in several
colours. The customer will also have the possibility to choose additional
accessories to adapt the car to its needs to make it look trendy and
stylish.
The company made the competitors also to enter this market segment.
Toyota, Fiat and Ford are also interested in making a cheap car by
investing in India. The increasing competition made them to develop a low
cost car to compete with second hand car market.
Soon after the launch of the car, expectations for the sales were not in
proportion to the realised success. A study by CRISIL in 2008 said that
the Nano would expand the car market by 65%. But as of late 2012, the
sales in the first two fiscal years are about 70,000 units though Tata had
aimed at 2,50,000 per year.
Actually it was anticipated that its 2009 debut would greatly affect the
used car market. The prices dropped 25-30% prior to launch and the price
of Maruti 800, the nearest competitor to Nano, fell by 20% immediately
after the launch. The affect on the prices of its substitutes is unknown.
The Tata's Chairman told that inspite of initial problems, the car has high
potential in future.
Though the price is fixed as one lakh rupees, few people could afford the
car compared to the alternative of motorcycles. But due to increase in
material costs, the price is raised to 1.5 lakhs by 2012. Still it is
cheaper than the Volkswagen Beetle.
The second generation of Nano is expected to be sold in US by 2015. The
original car cannot be sold legally in US or in grey market import until
2034. Though Tata can sell the car through its Jaguar Land Rover division
of Tata, it does want to sell through Jaguar.
11.1 The Problems Soon After Launch
Nano has faced three problems after it launch.
1. About half a dozen incidents of smoke and fire were reported by Nano
users. Though the company refused the recall of the cars, it asked
for the retrofit the exhaust and electrical system in the car. They
extended the warranty of all cars including sold ones to four years
from eighteen months in early December 2010. However, the company has
re-engineered the car to fix the problem and now there were no
instances of complaints in this case.
2. The pay-first, drive later booking model adopted by the company
attracted a bunch of customers for the car is not intended for. Of
the 2.06 lakh booking, the lion share is of the urban consumers who
wanted to buy as a second car. But as the initial excitement wore-
off, the sales dipped.
3. The distribution strategy adopted is a wrong model, for whom the car
is aimed at. The lower income people were apprehensive to walk into
large Tata Motors showrooms.
4. The first model of the car does not have air conditioning, glove box
no stereo with thin padded seats that do not adjust and single
windshield wiper.
5. Few customers did not like Nano because of the sound of the engine,
which resembles with an auto-rickshaw.
6. The car was detained in the hilly areas for the reason that it was
underpowered for driving in the mountains.
7. Nano was also rejected because of its bad positioning as "Cheap" car
and people expect many things from it to become their first car.
India's middle class want cheap car but it should not look like cheap
and they are willing to pay even more to the car which belongs to
upmarket.
12.1 Sales
Nominal factory output is 250,000 pa
FY 2009-2010 30,000 approx
FY 2010-2011 70,432
FY 2011-2012 74,527
FY 2012-2013 53,848
FY 2013-2014 first half (April to Sept.) 10,202

13.1 Revival Plans
Particularly two moves were taken out for the revival of the Nano.
1. Tata Motors set up 210 'F-Class showrooms', each only about 500 sq ft in
size and stocking just one car in smaller towns and hired 1,200 people to
man them.
2. It also tied up with Big Bazaar to gain attraction from the normal
customers who visit the retailer. The Big Bazaar gets a footfalls about
150 million every year. The touch-and-feel experience of the car parked in
the outlet also accelerated the decision making process in smaller towns
where the retailer has about 70 outlets in these places.
Both the ideas are aimed to take the car closer to the customers to have a
closer look and to connect with them geographically and psychographically.
Both have worked out well.
But the industry watchers contribute the sales growth to the incentives
offered to the Nano dealers. The dealers are supported to carry more
stocks and are offered a 30-day interest-free credit against a cash-and-
carry model for its other models.
4.Tata Motors focused on tier-II cities as it natural market, but for rural
market, the vehicle had to be more rugged out.
5. Tata Motors has improved the financing options also and announced new
measures like a four-year or 60,000-kilometre manufacturer's warranty at no
extra cost and an option to avail a comprehensive maintenance contract for
Rs.99 per month.
Despite of all these measures, the sales grew only 13% after a 30% growth
recorded in FY11. The Nano is still behind Alto, Swift, Wagon R and even
bigger cars like Dzire. The sharp deceleration of Indian economy is also a
reason for poor sales of the car. As the sales are low, Tata motors has
been laying off workers, cutting production to suit the sales. Its factory
in Gujarat is lying down with idle capacity and a lot of Tata dealers are
frustrated across the country.
Though it has these drawbacks, the car has received several awards such as
14.1 Awards
2010 Business Standard Motoring Indian car of the year
2010 Bloomberg UTV-Autocar car of the year
2010 Edison Awards, first place in the transportation category
2010 Good Design Awards in the category of transportation
Tata has high hopes in Nano and spent close to $400 million in developing
the vehicle and hundreds of millions more builiding the factory capable of
manufacturing 15,000 to 20,000 cars a month. Now, Nano is remaking the
"people's car" into the "cool people's car". It has given the car itself a
face-lift, adding a stereo sound system with four speakers, dual glove
boxes, improved interiors with refurbished exteriors, hubcaps and chrome
trim, raised the price and started a new marketing campaign to give it more
cachet. Tata is trying to target buyers less than 35 years age and 'a
little more aspirational than before'. It is showing in TV the young
entrepreneurs dancing with a tagline "Celebrate Awesomeness". Company
hopes that getting more young people drives the demand for their other cars
as well as 35 percent of their customers are repeat customers. But the
changing the peoples' perceptions will take time.
The whole journey of people's car to cool people's car is based on
perceptions of the people, which do not change overnight.
15. References:
1. www.tatamotors.com/July_Offer
2. www.slideshare.net/.../tata-nano-brief-history-and-case-study-analysis-
14701108.html
3. www.piyusharunkumar.wordpress.com/…/tata-nano-a-study-on-business-
challenges-in-india
4. www.studymode.com/essays/Tata-Nano-Case-Study-521174.html
5. www.icmrindia.org/casestudies/catalogue/Operations/OPER078.htm
6. www.blogs.hbr.org/2011/01/learning-from-tatas-nano-mista/-
7. www.scribd.com/doc/21385074/Case-Study-on-Tata-Nano
8. www.thehindubusinessline.com/…/case-studies/…tata-
nano/article5474975.ece
9. www.prezi.com/qv78ehssz-rx/case-study-tata-nano/
10. www.hbs.edu/faculty/Pages/item.aspx?num=38716.html
11. www.chatbhandaar.brainmaalish.com/tata-nano-failure-due-to-perception/
12. www.slideshare.net/narendrapatankar/positioning-iof-tata-nano 
13. www.ask.com/Case+Study+Of+Tata+Nano





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