Monday, July 6, 2015

What happened to the Tata Nano?

This week’s introduction to strategic style, vision, core values, and more was enlightening in learning about the numerous successful companies that have taken an idea and a dream, and made it flourish. That is, until I came across Ratan Tata and the Nano, the uber-cheap automobile funded under a “visionary” strategic style, as mentioned in Your Strategy Needs a Strategy, by Martin Reeves, Claire Love, and Philipp Tillmanns. Unlike most of the other companies mentioned in these articles and case studies, and the promises of an “ultra-affordable” vehicle from an article written in 2012, it was surprising that I had not heard of the Nano or Ratan Tata, so I decided to investigate a little further.

A swift Google search and an article titled “Why the World’s Cheapest Car Flopped,” published in the Wall Street Journal on October 14, 2013, gave me a quick answer as to why I had not heard of the Nano: it was a strategy that failed.

Nano was to be a frontrunner for Tata Motors Ltd., India’s fourth-largest automaker and the owner of Jaguar and Land Rover vehicles. The “stripped-down minicar” was priced around $2,000 but to maintain those prices, the vehicle did not include air conditioning, a stereo, a glove box, had non-adjustable seats, and had just a single windshield wiper.  The Nano was to be the “people’s car”—affordable to India’s lower and middle classes.

Unfortunately the car was a massive flop. People complained that it sounded like auto-rickshaws, it was underpowered, and it did not have as many features as people wanted. The image was also scorched a little after a series of cases in 2010 when the cars caught fire, but the company claimed they were not manufacturing defects. Tata sunk $400 million in developing the vehicle and many millions more building a manufacturing company. The factory could produce 15,000-20,000 cars a month, which would be great if their sales as of the writing of the WSJ article were not down to around 2,500 cars a month.

Tata came out with an update in 2013, the Nano Twist, which boasted a slightly higher price with a stereo system and power-steering, but no airbags—and sales were just as bad with only 554 units sold in December 2013. A 2014 article in the Wall Street Journal states that Tata has finally introduced a new vehicle. But it’s not the Nano; it is the $7,500 Zest.

So, what happened? Tata definitely made a “big bet,” but why didn’t the “build it and they will come” strategy work? Tata thought that they were making the car that India wanted: affordable, accessible—they thought it would be cool. But, as the WSJ article states, “It turns out that those climbing into India’s middle class want cheap cars, but they don’t want cars that seem cheap,” and they are willing to pay more.

Cheapness implies flimsiness, and the Nano was definitely flimsy. Tata also was not aiming at the correct target audience for the Nano. Some of the major fans of Tata and the Nano were middle-class urban youth, but Tata decided to focus sales of the car on India’s rural area because they thought there was more scope there. But that failed for them since while the rural population had less money to spend, that meant that they were more cautious with how they spent their money—and a cheap, unsafe vehicle would not be a wise purchase. Tata’s strategy was not clear—it was bold, but it was not clear. Reeves, Love, and Tillmanns write that it is important for the goal to be clear, and by taking the time and care needed to gather resources, plan, and implement correctly, it can save the vision from falling victim to poor execution (p. 7). Unfortunately, the lack of deeper market research, unclear goals, and a low quality product lead to the Nano’s ultimate visionary failure.

Able, Vanessa. Tata Nano: the car that was just too cheap. The Guardian. 3 Feb 2014.
Choudhury, Santanu. Tata Unveils First New Model Since 2010. Wall Street Journal. 12 Aug 2014.
McClain, Sean. Why the World's Cheapest Car Flopped. Wall Street Journal. 14 Oct 2013.
Reeves, Martin, Claire Love, and Philipp Tillmanns. Your Strategy Needs a Strategy. Harvard Business Review. Sept 2012. 

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