CONCLUDING CASE

TATA MOTORS: FROM CHEAP TO AWESOME?

The barriers to entry are so high in the automotive industry that it is rare to see a new entrant. A notable exception has been india’s Tata Motors, the country’s largest maker of commercial vehicles, which about five years ago promised to become a leading carmaker in the fast-growing economies of the developing world. Comparing its ambitious plan to the iconic Volkswagen Beetle and Ford Model T, Tata launched the Nano in 2009. Branded a “people’s car,” the Nano was priced at $2,000 to $2,500 (or 1 lakh in indian currency). Tata Motors marketed the stripped-down minicar to first-time automobile customers in rural areas. The goal was to make the Nano the standard transportation for indian families working their way up to the middle class.

The promised launch was so ambitious that Tata could not realistically meet expectations. Production was postponed for about a year and a half, and then the company determined it couldn’t afford to sell the Nano profitably at the promised price. The first Nanos to roll off assembly lines were priced just $800 below Suzuki’s competing Alto, which offered more storage space and a more powerful engine. The Nano’s safety performance also ran into embarrassing problems; some reportedly caught fire.

Sales of the Nano have been disappointing. After reaching its maximum sales of 10,000 in April 2012, recent reports of the “people’s car” indicate 2,500 units are sold each month. It has been suggested that the low sales were a result of the unacceptably low level of quality and features built into the vehicle, including an underpowered and noisy motor, no stereo or air conditioning, and wires visible in the driver’s compartment. Another reason for the Nano’s demise was a missed target market, namely young urban drivers. The cheap and unsafe image associated with the Nano turned off many of these would-be buyers.

The Nano’s failure was frustrating to Tata Motors that had invested $400 million to develop the Nano and “hundreds of millions more building a factory capable of manufacturing 15,000 to 20,000 of the tiny cars a month.” if it were to be successful in the long run, Tata Motors would need to adjust its strategy to overcome the myriad barriers to success in the indian automotive industry.

Tata Motors has changed both its marketing and manufacturing strategies. Shifting its focus from first-time rural buyers to young urban customers, the company recently launched the Nano Twist and Nano LX. It is trying to rebrand the Nano from “cheapest car in the world” to an “awesome” car that is also affordable. Priced as high as $3,578, these improved Nano models can include several upgrades like power steering, music system with Blue-tooth connectivity, and enhanced interior and exterior features.

Also, Tata has responded with maintenance contracts, test drives, and safety improvements. It has revenues from its commercial vehicles and its Jaguar Land Rover operations to stay afloat. Perhaps the Nano will still become the people’s car. Start-ups often make mistakes, and some of them recover brilliantly. What made Tata’s stumble remarkable was its grand scale.

DISCUSSION QUESTIONS

1. Which barriers to entry contributed most to Tata Motors’ lack of success with the original Nano?

2. Which macroenvironmental factors did Tata Motors consider when adjusting the marketing and manufacturing strategies to achieve success with the more recent Twist and LX models?

3. To what degree do you believe Tata Motors will succeed in delivering a successful low-cost vehicle to consumers in india and other developing economies?