Subject: Consumer Behavior

Case Study 1: Tata Nano: The People's Car or World's Cheapest Car?

Ratan Tata, Chairman emeritus of the Tata Sons Group, was traveling in his car one rainy day in Bangalore. He spotted a family of four on a scootera father driving with his young son standing precariously in front of him, and his wife seated behind him with their baby grasped close to her chest. This, Ratan Tata observed, was a common scene on Indian roads. Thinking about the danger that such two-wheel drives posed to nuclear families, he planned to develop a safe, affordable, all-weather car for the millions of Indians... a "people's car." Tata had also decided that the car would cost 1 lakh ($1483.45), a figure which in 2008 was midway between the price of the cheapest car and the price of a two-wheel motorbike. It was then labelled as the "world's cheapest car. The target groups aren't existing passenger-car owners, but the millions of Indian families that depend on scooters or other two-wheelers for their daily transportation. The Nano (meaning "small" in Gujarati), as the car is to be called, was designed to offer safe, comfortable, and reliable mobility that is also economical. To achieve this, Tata Motors refined the manufacturing process with innovation and new design. There were certain factors that could not be compromised even though doing so will reduce costs. For instance, making the Nano a two-door car could achieve substantial cost savings. However, doing so would make access to the rear seats challenging and inconvenient especially to the typical multi-generational Indian families. Therefore, the two-door design was not adopted. To meet its low price target, the Nano's trunk does not open. Instead, the rear seats can be folded down to access the boot. It has a single windscreen wiper instead of the usual pair. It has no power steering. It has manually operated side windows and makes use of plastic and glue instead of welded steel. The base model has three lug nuts on the wheels instead of the usual four, only one side-view mirror, and no air-conditioning and airbags. It has fixed seats, except for the driver's, which is adjustable. 4 To lower the cost to users, Tata Motors also lowered the total cost of ownership of the Nano both in terms of the upfront purchase price as well as the monthly fixed expenses and operating expenses such as after-sales services and maintenance, and interest repayments on loans. Cheap financing services with major Indian banks were arranged. People buying the Nano could pay as little as 2,999 rupees ($59) and finance the rest at a lower interest rate than that of other fourwheelers. Tata's research team conducted a study and calculated the total cost of ownership based on total investment, monthly repayments over 36 months, and monthly fixed and operating expenses, assuming usage of 1,250 kilometers per month. When compared to a range of alternatives, The Nano was among the most affordable options not only against other small and compact cars but also three-wheelers and motorcycles in India. In the months prior to the launch of the Nano, used-car sales in India fell and the price of a used car of its nearest competitor, Maruti 800, dropped by 30 percent. People were withholding car purchase in anticipation of the Nano. However, the Nano was plagued with production delays. Launched in 2009, it got off with a shaky start. The press criticized its safety and emissions standards when there were some reported cases of the Nano catching fire. It was priced at 137,555 rupees, a significant increase from the initial 100,000 rupees. The 200,000 bookings that the Nano received during its launch belied underlying misalignments. Response was unexpectedly greater in metropolitan centers than smaller towns, which were widely perceived to be a market for the Nano. Tiers 2 and 3 towns accounted for only 30 percent of total bookings. Typical two-wheeler owners were reluctant to walk into a large car showroom because the "people's car" reached out to existing car owners who were looking to buy the Nano as a second car for its cheap price. As the reputation for the Nano went from being a "people's car" to a "cheapest car," two-wheeler owners were turned off. After all, they wanted not only better mobility but also an upgrade in status. In 2010, the total sales for the Nano amounted to around 77,000 rupees ($1,142). In November 2010, when overall auto sales in India's booming economy rose more than 22 percent, Tata Motors sold only 509 Nanos. By 2012, three years after its launch, monthly sales were a far cry from the original projection of 20,000 to 25,000 units per month. To reach out to the smaller towns, Tata Motors set up "first-class showrooms" displaying the Nano. It also tied up with hypermarket chain Big Bazaar to display the Nano in its outlets in outlying towns. To change its image to endear itself as offering value, the Nano was repositioned to a musthave fashion item. In an upgraded model in 2012, the Nano was touted as "Tata Reboots Nano, World's Cheapest, as Coolest Small Car." By 2015, sales of the Nano remained dismal. Calendar year sales in 2013 and 2014 stood at 18,447 and 18,531 units respectively. The company cumulatively managed to sell 263,619 units of the Nano till January 2015.

Question 1: What caused the actual sales of Tata Nano to be much lower than the initial expectation prior to the launch of the car? (25 marks)

Question 2: How should Tata Motors appeal to the targeted customers effectively? (25 marks)