Business Today

The new Nano promise

Fuelled by five years of disappointment, Ratan Tata's little car wants to erase its 'cheap' past for a 'smart city' future.
twitter-logoSuveen Sinha and twitter-logoSunny Sen         Print Edition: Mar 30, 2014
Tata Motors' Ranjit Yadav and Ankush Arora
Tata Motors' Ranjit Yadav and Ankush Arora

The call was unexpected. But when it came, Delna Avari had no doubt in her mind what her response would be. She moved from Bangkok to Mumbai, and from trucks and buses to little cars, "overnight".

That was October 2010. Avari had spent the previous eight years doing short stints in different countries for Tata Motors' commercial vehicles division. She was in Bangkok when Ravi Kant, who ran the company at the time, called. He wanted her to come back to India and join the Nano team. The vision for the Nano, said Kant, had not played out the way they thought it would. As understatements go, that was like calling a Ferrari a four-wheeled transport for two. The Nano was unveiled in January 2008, exactly 100 years after Model T hit the road and helped ordinary Americans drive every day. The Nano, as the world's cheapest car, was meant to migrate millions of Indians from two wheels to four and prove India's supremacy in frugal manufacturing just as Henry Ford's Tin Lizzie had established the moving assembly line.

However, the month Avari moved, the Nano sold a mere 3,065. It had crossed 5,000 only in four of the 16 months it had been in the market. Its installed capacity was 15,000 a month. There would have been periodic increases in it. According to reports at the time, Tata Motors had spent $400 million just on developing the little car, and then some on setting up a new factory in Sanand, Gujarat to produce it.

Tata Motors' Ranjit Yadav and Ankush Arora
Tata Motors' Ranjit Yadav and Ankush Arora Photo: Rachit Goswami/www.indiatodayimages.com
"When we were planning facilities for the car and working out a business plan, the business plan shown to me was looking at a figure of 200,000. I said the figure is crazy. If we can do this, we should be looking at a million cars a year, and if we cannot do a million then we shouldn't be doing this kind of car at all," former Tata Sons Chairman Ratan Naval Tata said in an interview to the group website in January 2008, on the eve of unveiling the car and giving it a name.

Between two stools
Tata, or RNT, as his executives like to refer to him, remains a guiding light for the group despite retiring at the end of 2012. He was the one who conceived the idea of the Nano. His first doodle, of a car built around the humble scooter, was inspired by the sight of a family perched precariously on a scooter and trying to take shelter under a flyover in typically heavy Mumbai rain. The Nano, with its low price tag, would be the answer to their problems. Years before it came to be named, the concept of the car spread like wildfire as soon as Tata mentioned it in 2003. They called it the world's cheapest car, or the Rs 1 lakh car, or - in Hindi - the lakhtakia gaadi.

Delna Avari, Head, Marketing, Passenger Vehicles Business Unit, Tata Motors
We left a lot of the positioning to somebody else. The company did not manage the perception: Delna Avari, Head, Marketing, Passenger Vehicles Business Unit, Tata Motors Photo: Rachit Goswami/www.indiatodayimages.com
Avari, brought back to head the Nano project, had to be part of the team tasked with reviving its fortunes. She came amid inauspicious portends. The next month, November 2010, the car plunged new depths by selling a mere 509. Didn't she come back to India kicking and screaming?

"I was honoured," says Avari with a chuckle, something that is never too far from her countenance. "Anything for the Tata group." That last bit has to do with her lineage. Her father, like her, worked in Tata Motors, and mother in the group's insurance arm; her sister is with Taj, the group's hotel chain. "We are a Tata family." She is also a Nano owner, driven by her chauffeur, and refers to the tiny egg-shaped car as "the little one".

One reward for her unquestioning loyalty was a briefing by RNT, during which he said all he wanted was to provide an affordable personal mobility option to every Indian. "That somehow got translated into gharib ki gaadi. We left a lot of the positioning to somebody else. The company did not manage the perception," says Avari.

That wasn't new; Tata had made the point in that interview to the group website. "It was never meant to be a Rs 1 lakh car; that happened by circumstance. I was interviewed by the [British newspaper] Financial Times at the Geneva Motor Show and I talked about this future product as an affordable car. I was asked how much it would cost and I said about Rs 1 lakh. The next day the Financial Times had a headline to the effect that the Tatas are to produce a Rs 100,000 car."

Ratan Tata, Former Chairman, Tata Sons
It was never meant to be a Rs 1 lakh car; that happened by circumstance: Ratan Tata, Former Chairman, Tata Sons Photo: Yasbant Negi/www.indiatodayimages.com
That price was interpreted as 'cheap'. The current thinking, within the company and outside, sees that as the root cause of all that did not go according to plan with the Nano. "Nobody wants to tell his friends and neighbours he has bought a cheap car. The brand is damaged," says Jack Trout, global guru in marketing strategy. "It is a category that they maybe should not have got into."

Cheap would have been a mistake even a lot earlier. Model T had to be discontinued in 1927 - it had already sold 15 million by then - because Americans wanted more than just a sturdy, affordable car; they wanted style, speed, and luxury, too. It may have been too much to expect Indians to lap up a no-frills car in the 2010s. It is no surprise that the Nano has sold only a quarter of a million in nearly five years.

It did not help that the Nano, when it came, redefined no-frills downwards: forget stereo, air-conditioning, and power windows, it did not even have a glove compartment. With that, customers became less tolerant of its little quirks such as the different sizes of the front and rear wheels.

"Smart (a small car from Mercedes), too, has wider tyres at the rear. Since the weight was heavy on the rear, we had to go for broader rear wheels," says Girish Wagh, another secondgeneration Tata employee, who headed the project to create the rear-engine, rear-wheel-drive Nano. The architecture was found the most suited for providing the most interior space - it is indeed surprisingly big inside - and manoeuvrability.

But the quirks stretched a consumer who had already had to wait about a year and a half after Tata unveiled the car to be able to buy one. It hit the road only in the middle of 2009. The first advertisement, reflecting the wait, was all about Nano aa gayi (the Nano is here). There were reported to be 200,000 bookings before launch, the deliveries were a fraction of that.

Soon after the cars hit the road came reports of some of them catching fire. Now the low price tag backfired worse than it had for Model T. For the Nano, it was seen as an indicator of low quality, lack of reliability, and absence of safety.

Vanessa Able wrote on London's Guardian newspaper's website last month she was so inspired by the idea of the Nano she bought one and took it on a 10,000 km trek across India in 2010. Along the way, people used to ask her if she was not concerned about the prospect of a Nano fireball.

"There were stray cases of foreign objects found in the exhaust system of the car. When the car ran for some time and reached a certain temperature, those objects caught fire. The second reason had something to do with the starting system," says Wagh. In some cases the owners - in a sign that they wanted more from the car - had installed after-market equipment like a music system, directly tapping the power and leading to a short circuit.

"Quite a few cars catch fire," says an executive of Maruti Suzuki. "Often it is because of something wrong with the electricals." But the Nano fire, figuratively speaking, proved difficult to douse because it was a "cheap" car. Had it been more expensive, the fires may have been dismissed as a one-off. After all, there were only three or four episodes. But it stuck because people said, "What else would you expect from a cheap car?"

Maruti had briefly toyed with the idea of bringing out a product to rival the Nano but quickly discarded it because first, it was a daunting task to make a car profitably at that price, and secondly, it witnessed a change in consumer behaviour. Says the executive mentioned above: "The bulk of the sales of our cars, 50 to 60 per cent, used to be for the middle model; the base model would get 30 to 40 per cent, and the top model no more than 10 per cent. But a shift happened around that time. The top end started to get significant share and not many buyers wanted the base variant."

It was clear that the consumer now wanted more value for his money even if it meant spending a little more. Cheap was going out. "I do a good bargain" was no longer a good boast to make. The launch of the new Swift by Maruti in 2011 was a case in point. When it came, there was a wait list for the old one. All those in the queue readily agreed to switch to the new Swift, which had more bells and whistles, but cost Rs 35,000 to Rs 40,000 more than the old one.

As the car buyer wanted better cars, and not a supposed replacement for the two-wheeler, the twowheeler buyer preferred to wait till he could buy a car that was perceived to offer more value - a real car (see Rama Bijapurkar's column on page 70). The Nano may have fallen between the two stools. It is now trying to get a foothold on the one that is costlier, swankier, and more desirable to the consumer.

Before and After
It was a different India in 2007, the year before the Nano was unveiled. The Nokia 1200, priced at less than Rs 3,000, was among the most popular mobile phones. Flat panel LCD televisions were sparse, the ones with bloated backsides were everywhere. Facebook had just come in. Flipkart had just been set up. Laptop computers vied with desktops for supremacy; tablets were what you had when the doctor told you to.

Today, Samsung Galaxy S3, a smart phone priced at more than Rs 25,000 is all the rage. LCD televisions adorn most walls in the cities. Facebook has 100 million users. Flipkart is valued at more than $1 billion. You can see tablets in the hands of every other passenger on Rajdhani Express. And yes, there is a Nano variant priced at Rs 2,58,000. How did that happen to the lakhtakia? It started with that briefing Avari had with RNT.

"If you drive the Nano, the first thing that will strike you is, 'why do I hear these [bad] things about the car?' RNT wanted more and more people to experience the product, instead of talking about it without experiencing it," says Avari. Secondly, he wanted the car supported from all quarters. "The Nano innovation happened within Tata Motors: product, manufacturing, and sales; not outside."

Avari, and the save Nano team, set about managing the "outside". There was always help available from Wagh, as Avari began to frequent the company's mother factory in Pune as well as the Nano factory in Sanand. Ankush Arora, head of sales and marketing, was a core part of the team. Ranjit Yadav, having made a name for himself as the head of Samsung India's mobile phone division, joined Tata Motors in October 2012. He joined a few days after Karl Slym, the managing director who fell to his death from Bangkok's Shangri-La hotel in January this year.

When Yadav joined, Tata Motors was the country's third-largest carmaker but ranked 12th out of 12 in JD Power's sales satisfaction survey. In service, too, it was not in the top six. "Clearly, your consumer had to love you because you made it hard for them to buy from you. Clearly, we had to improve our sales and service experience," says Yadav.

Tata Motors had several of its employees working at the dealerships, at times 16 touching each dealer. "If you went into a dealership in those days, you would probably have shaken the hands of a Tata employee and not a dealer's," says Yadav. The dealers told him it was too complex to deal with Tata. They did not know who to listen to. Today each dealer has one person to talk to on sales and one on service. "I would say we are five times easier to do business with than we were 15 or 16 months back," says Yadav. The JD Power ranking on sales experience last year jumped five places to seven. "It's still not good, but at least some of the things we are doing are starting to trend upwards."

New sales outlets were opened old ones were refurbished. The documentation for getting a loan was made easier. The acquisition cost of the Nano was low, but the car's life cycle cost had to be brought down. So Tata announced a four-year warranty. "We did it also because there were these funny things being stated about its reliability. It was already the most fuel-efficient petrol car," says Avari.

The network taken care of, the team turned to the customer. Avari, who was promoted to head marketing for all of Tata's passenger vehicles in August last year, says they started thinking of those who would want the Nano as their first car upon turning 18. "How can they want it from age 14 and bug their parents till they get it? How do you speak their language?"

That's how the repositioning of the Nano started in August-September 2011. After long-winded conversations with RNT and Ravi Kant, they prepared a plan for the next five years.

Twist in the Nano Tale
As a manifestation of the plan, cheap is out, awesomeness is in. Jagdish Khattar, who ran Maruti in the years that the idea of the Nano excited and enthralled everyone, says that should have been the case from the beginning. "I would have given this car to people who owned Mercedes and told them, 'Sir, this is your third car, take it when you go out to walk your dog in the park. Everyone will buy a car if they think it is the one that the well-heeled drive."

Avari swears the affluent always drove the Nano. "When we launched, and through the booking phase, the car was picked up by the well-heeled; 80 per cent of the buyers wanted it as their third or fourth car." She sees evidence of this every day around her house in Mumbai's upscale Cuffe Parade area, which she says is full of Nanos. "All of them are driven by their owners.

Mine has a driver because I get stressed driving." That is rich coming from someone who learned to drive on a Sumo and saw people jump out of the way on seeing a girl driving the burly utility vehicle. The effort now is to hold on to the affluent buyer, and also move down in age to catch the urban youth, who have always liked the Nano, but whom Tata Motors, busy trying to appeal to the humble first-time buyer, never consciously wooed.

It is ready to make amends now. "From the time of the Nano's launch to 2010, 20 per cent of the buyers were in the age group 25 to 34. Today, 45 per cent are. Obviously my consumer set has changed. Our task is to bring in more of those buyers for the simple reason that 55 per cent of our population is within the age of 25. Those are the buyers who are going to come into the market. If we don't get those buyers, we will probably miss the bus," says Arora, the sales and marketing head.

Nano's advertising today, in contradistinction to the first Nano aa gayi campaign, is an explosion of colour and music, with young people apparently having fun while doing things few do in real life, and Masaba Gupta taking the covers off an electric blue Nano. Gupta is the young sensation on the fashion designing circuit, who was earlier a symbol of women's liberation as a child born out of wedlock to West Indian cricketer Vivian Richards and Indian actress Neena Gupta. "We wanted to connect with [the urban youth] on the phenomenon of celebrating achievement, or celebrating what you stand for," says Arora.

Coming days after Cyrus Mistry, who replaced Ratan Tata as the group's Chairman, said the Nano would be repositioned as a "smart city car", the commercial raced to five million views on YouTube in 30 days, more than any other car commercial had garnered, according to The Economic Times.

But if advertising alone could do the job, Martin Sorrell would be the king of the world. The Nano's new aspiration had to be constructed in drafting rooms and workshops. It went through several changes as newer versions emerged in 2012 and 2013. The latest, called the Nano Twist, is as different from the one first seen in 2008 as Mamata Banerjee, the West Bengal politician who drove out Tata Motors, is from Narendra Modi, the Gujarat Chief Minister who sent an SMS to Ratan Tata inviting him to set up shop in Sanand as soon as he heard of Tata's decision to move out of Singur.

From an engineering perspective, it is more refined and has a better steering wheel - a power steering, no less. Wagh tweaked its suspension for better ride quality and added an anti-roll bar in front. The result is reduced body roll and better stability at corners. The power train was improved to increase peak power and torque, and the exhaust system for a more refined feel.

As it began to come in new vibrant colours like "damsel purple" ("I have a shirt in that colour," says a gleeful Yadav), the Nano sprouted a glove compartment, a modern music system with Bluetooth connectivity, and keyless entry. And yes, an additional layer has been added to the entire electrical system to prevent fire.

Jack Trout, Marketing guru
Nobody wants to tell his friends and neighbours he has bought a cheap car... It is a category that they (Tata Motors) maybe should not have got into: Jack Trout, Marketing guru
February's Auto Expo in Greater Noida gave a glimpse of the big things in store for the little one. The Tata Motors pavilion displayed a Nano with automatic manual transmission, which appears to be the new tune many carmakers are singing to lure buyers. The technology makes city driving easier by doing away with the clutch. Maruti Celerio is already off the block, reportedly getting half its orders for the clutchless variant.

Of course, the prices, too, have risen. Nano Twist's price takes it into the territory of Maruti's Alto, which has remained the largest selling car in the country, or thereabouts, for many years. Ratan Tata, when he unveiled the first Nano at Rs 1 lakh, had famously said, "A promise is a promise." Is it a different promise now? A promise with a Twist? "That product had a particular value proposition and it was very disruptive.

The value proposition has changed completely, but even today it is significantly disruptive," says Wagh. He would be hoping it would not only be disruptive but also attractive. The economy is growing at nearly half the rate at which it was growing when the Nano made its first appearance on Indian roads. That means less money in the hands of potential buyers.

Secondly, talking to CNBC's Managing Asia programme in Singapore last November, RNT had said: "Maybe it (the Nano) gets launched in another country like Indonesia, where it doesn't have the stigma and the new image comes back to India. Or maybe as a changed product that gets marketed in Europe. There's a lot of interest in Nano outside India."

Rama Bijapurkar
Rama Bijapurkar
The walk, not the talk, may be the problem


An illiterate housewife will tell you that a cheap cooking oil, though with ultra modern packaging, is more expensive in the long run because it is more chikna and clings to the sides of the pan, requiring more oil to make bhindi ki subzi. A low-income mother will tell you that two pay channels for movies is good value because then her mother-in-law will stay at home all evening with the kids and she can go to work and command the higher night-time premium wages from richer working women. Customers - rich or poor, illiterate or PhD - always choose the option that the computer in their head calculates as the option with the highest value.

A simplistic model of how this calculation is done is that consumers see each option (including the "don't buy now") as comprising a set of benefits (rational and emotional - even for B2B customers!) and a set of costs (cost, as they see it, is not just price) - that's where many marketers go wrong in their simulations. A car's 'cost' could be processed as EMI, running cost, and, if they think it's a fragile vehicle, the likely cost of repair when driving on potholed roads with other large cars and brutish drivers.

Using the value processing algorithm in their heads, each customer arrives at a net value for each option - net value being the value added from benefits less the value taken away by costs. They then pick the one with the best net value. Do different groups of consumers have different value processing algorithms? Of course they do. But if you believe unsophisticated or less educated consumers do not know how to do this, think again. How much value a person attaches to something is dependent on his life context and mental makeup.

A young, well educated and well employed first-time intending car owner for whom a twowheeler is not an option will process the value delivered by a Nano's benefits and costs very differently from a 40-year-old, middle-class, selfemployed small services provider who wants to upgrade to a car from his high-end motorcycle.

The other options that each considers are also different. The question is in which situations (and for how many people) was the Nano seen to be the best value option, meriting purchase? Clearly, it wasn't seen to be the best value option for large enough numbers - or it would have sold more.

One explanation for this being put out is that the Nano-related communication distorted its perceived value to consumers. That "low price" made consumers interpret it as "low status" and inferior in benefits - because Indian consumers are programmed to think that low price means poor quality. However, that isn't true at all. Consumer perceptions are shaped by suppliers' conduct, and in the past 15 years Indian consumers have experienced low-priced but stylish dual-language keyboard and camera feature phones (thank or blame Nokia for that), have seen IndiGo do cheaper and better flights, and have seen prices of durables drop and quality go up. The pavement fashion streets have got a lot better merchandise and styles and the same goes for everything imported that we find on the street.

So it isn't the Indian consumer's psyche that's to blame; perhaps it's the lack of communication of the Nano's benefits. But perhaps it's not the talk, but the walk that is the problem. Perhaps consumers' computers are processing what's available and telling them that the value lost from the additional EMI is more than offset by the value gained by better features if they buy a more expensive car. Forking out `3 lakh at one go is impossible for them. But paying it as EMIs may merely mean two less family outings each month to the multiplex.

If at current interest rates, the "Benefit minus Cost" of the next level of cars is poor value, we know of consumers who say that one or two years later I will earn more and the EMI will come down, and then it will be good value. So why not defer the purchase till then rather than settle for an option that gives lower value today and tomorrow?

"Stretch for more" and "wait if you must, rather than settle for less" are the mantras of the new Indian customer. That's what an aspirational, upwardly mobile society is about. And 'more' and 'less' is not about price; it's about value, which is the aggregation of benefits and costs, rational and emotional, price and other costs too.

Rama Bijapurkar is a market strategy consultant and author of Customer in the Boardroom - Crafting Customer-Based Business Strategy

Follow the authors on Twitter: @suveensinha, @SunnySen

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