No longer the peoples car!

Sometime in 2005-06, India's top vehicle manufacturer, Tata Motors, displayed it's latest creation, a car, at the Auto Expo exhibition in New Delhi, claiming that this car would be the true people's car that would be sold under one hundred thousand Rupees.

During following years, the expectations rose to very high level, as the car, now named as 'Nano,' was being planned to be manufactured in a brand new factory near Kolkata on a massive scale. A 2008 study, by Indian rating agency CRISIL, thought the Nano would expand the nation's car market by 65%. 'Nano' made its debut in 2009 and Tata Motors announced plans to make 2500000 cars every year from the brand new factory that was coming up.

Things however turned for worst. Local farmers soon began protesting the forced acquisition of their land for the new factory and the dispute got sucked into the political whirlwind of the state of West Bengal. Finally, Tata Motors was forced to close down the construction of the factory and shift the location to the state of Gujarat. Initially, when there was a great demand for the car, the company was not able to produce enough cars to meet the demand because of this delay.

Subsequently, in spite of the adequate manufacturing capacity now available, Tata Motors are not able to sell more than 70000 'Nano' cars in a year. The company was also not able to keep the price of the car below one hundred thousand Rupees due to increased material costs. Today the car costs almost double of that.

What were the reasons for such under performance of sales of this car, when it had all the potential, quality and pricing, going in its favour. In July 2012, then Tata Group Chairman, Ratan Tata, accepted that even though the car had immense potential in the developing world, company lost early opportunities due to initial problems. That surely was a reason no doubt, but surely not the only reason.

This car was supposed to have been targeted at the urban users of motor cycles. However, there remained a huge price difference between two and secondly on India's congested urban roads, maneuvering a motor cycle was far simpler and cheaper than a car. 'Nano' gained acceptance only as the second car used by the housewife for marketing etc. at best.

However the main and most serious obstacle in increased sales of the car was the brand image of the car, initially created by the company. Since the 'Nano' was launched in 2009 as a budget solution for millions of aspirational lower-middle class Indian families wanting to change from two- to four-wheel vehicles, the real car buyers, hated this “cheap” tag and shunned it, being highly status-conscious consumers.

New, Tata group chairman, Cyrus Mistry has finally accepted and told this fact to the shareholders of the company at its annual meeting on 21^st August 2013, in Mumbai. He said that Tata Motors would now reposition the Nano as a "smart city car" and change its marketing pitch as the world's cheapest auto, which has failed to give desired results.

Company is now focusing on increasing the features and the perceived value of the Nano with every subsequent model launch. What is in the pipeline are features like power steering options, an improved interior and exterior, better fuel efficiency and a much-delayed compressed natural gas -fuelled variant of the 'Nano.'

Tata Motors do not really have any other option because of the showdown in the domestic auto sector, high interest rates, stagnation of industrial growth in sectors such as mining and infrastructure and finally the free falling Indian Rupee.

I have been following the 'Nano' story since its inception. It is a very interesting example of consumer behaviour pattern and I am sure that in business schools all over the world, a new chapter now would be taught, citing the 'Nano' example, that in consumer minds “ cheapest is not necessarily the best.”

23 August 2013