Ratan Tata, the legendary leader of India’s Tata Group has said in an interview the other day (The Times of India, November 29, 2013) that it was a mistake to have described and positioned the innovative Tata Nano small car as the world’s cheapest car. He even went to the extent of stating that the Nano should be launched in a new country like Indonesia in a new Avatar and brought back to India with a new image. Ratan Tata, the Chairman Emeritus of the Tata Group also stated that the car was developed as a safe alternative for the Indian small family of husband and wife and their children who travel unsafely on a two-wheeler and implied that Nano car failed to take its place due to the stigma of a cheap car. He also felt that it could be launched as a changed product in Europe where it has a lot of interest. For all those who believed in Tata Nano as a hallmark of Indian innovation, Ratan’s admission on Nano must have come as a rude shock.
By any yardstick, Nano was a technically brilliant package. It is a 4 door bubble design car, with a 2 cylinder rear mounted gasoline engine and a 4 speed gearbox, capable of comfortably seating 5 persons of a small family (couple and the kids). With a wheel base of 2.2 meters and an overall length of 3.1 meter and a width and height of 1.5 and 1.6 meters respectively, the car beat the Volkswagen Beetle small car in external compactness and internal spaciousness. With a power and torque output of 38 PS and 51 NM respectively, and a kerb weight of 600 Kg and a turning radius of only 4 meters, Nano is also an ideal city car. The no-frills car had a launch price of Rs 100,000 (then USD 2000), becoming the world’s cheapest car to be designed, manufactured and commercialized ever in the world. This level of techno-commercial brilliance is undoubtedly a matter of significant pride for India, a country that was until recently immeasurably dependent on imported dated technologies of overseas automotive majors for Indigenization.
Cheap price, the only factor?
Ratan Tata’s perception that the cheap price and the associated stigma have been the main causes of Nano’s failure is probably an oversimplification of the issue. It is probably as much oversimplification as assuming that the lowest price that cannot be achieved by any other car manufacturer would automatically set the market on fire for Nano. A 2008 forecast by a reputed agency, CRISIL, for example, estimated that Nano would singlehandedly expand the car market by as much as 65 percent, that is creating an annual additional demand in lakhs of Nano cars. In actual practice, the Nano car could only be sold in thousands. The car underwhelmed rather than overwhelmed the fast growing Indian car market. The current hypothesis by Ratan Tata that the low price acted as a deterrent overturns the entire theorem of strategy about market being weighed down by high entry deterrent prices. Clearly, there is more to Nano, or any other product, than mere price.
The corollary hypothesis that an unbelievably low price carries a stigma is also equally questionable. Nor is it sustainable that low price products would need to target only consumers of lower economic strata, in this case such strata not being the appropriate users of a Nano-type car. There exist several examples in both overseas and Indian environments that invalidate these two hypotheses of stigma. Akihabara, the electronics shopping city of Tokyo and Shinjuku, the up-market shopping district of Tokyo are dotted by luxury shops as well as discount shops, the latter patronized by even the more affluent clientele. If Nano were truly positioned effectively for the two-wheeler bound small families as intended by the design envelope, both as a conceptual and practical proposition, Nano would have been a symbol of prestige rather than a sign of stigma. Nano has certain broader leadership lessons to offer in this context to students and practitioners of management and strategy, five of which are discussed below.
Leadership is sum of parts
A brilliant and focused leader can pull off unparalleled accomplishments by his or her personal charisma, commitment and competence, moving broad teams with him or her. That is what Nano has been – without Ratan Tata’s leadership there could not have been a Nano car at all. However, for a product to become a phenomenon, it requires brilliance in strategy and excellence in execution in all functions that directly enable or indirectly support the design, manufacture and marketing of the product. Certain functional performances whether relating to the location decision of the plant or the marketing of the car were probably not on the dot as certain other functional performances relating to design, project engineering, supply chain and manufacture have been in respect of Nano. Business leadership at the apex level cannot substitute functional leadership; in other words, brilliant business leadership leads to sustainable results when all the functions display equal brilliance. While it may be fashionable to speak of leadership synergy, the more foundational imperative is the realization that leadership at the minimum is sum of the functions.
Success is much about timing
Time and tide, it is said, wait for none. In a business setting, competition never stays still. Strategic timing is the essence of business success. When Tata Nano was conceptualized in the early 2000s, India was a hugely small car market with a dated Maruti 800 small car ruling the roads like a king. Had Nano been introduced by 2004 as originally envisaged, the car would have caught the peoples’ fancy. As the events moved, Maruti introduced a more modern small car, Alto, while Hyundai introduced i10, both of which influenced an important upward shift in consumer expectations. The prolonged political standoff on the Singur land in the State of West Bengal (where the Nano facility was to originally come up) and the consequent shift of all the facilities and equipment to a new site, Sanand, in the state of Gujarat which pushed the launch to 2009 did not also help matters. Breakthrough initiatives, which include market shaping product development and launch, often require a near perfect timing. As Tata Motors seeks to reengineer and reposition Nano, the timing would be as important as strategy.
Style and substance are equally important
Products in the contemporary market space are preferred as much for experience as for functionality. A product-specific ecosystem helps in merging the twin requirements. In a previous blog post “Style is Substance: Management of Product Design and Manufacture”, Strategy Musings, August 8, 2009 (http://cbrao2008.blogspot.in/2009/08/style-is-substance-management-of.html), the author of this post argued that styling determines not merely a look-feel but also leads to upgraded design and manufacture. To the extent that Nano was brought in as a no-frills car in an environment which was getting used to more up-market features, the consumers may have felt that style lacked substance in the Nano. Some of the cost-cutting measures like lack of external access to rear trunk, lack of airbags, lack of power windows and lack of air-conditioning probably compromised the stylistic and substantive aspects. A Dell like approach that would have enabled the customers choose their preferred combinations of style and substance would have resulted in better customer engagement and superior management of customer expectations. Rather than keep the new Nano features under wraps, it would be helpful for Tata Motors to release them in advance and calibrate the design and manufacture to take care of customer responses.
Products and customers need ecosystems
Products shine in ecosystems that add demonstrative value to their hardware and software. The Apple stores showcase Apple phones while iTunes provides the applications boutique. Customers had plenty of accessories to choose from to add value to their iPhones and iPads in offices and homes. In contrast, Nano despite being a prestigious product was put in as a poor sibling of the mighty trucks in the dealer network of Tata Motors. More distressingly, the target customers probably had parking spaces for their two-wheelers but no parking spaces for their new Nano cars! A complete lifecycle analysis would have provided the product and marketing architects of Nano with valuable inputs on the availability and non-availability of supportive ecosystems for the car. Again, as Nano gets reengineered and repositioned an appropriate ecosystem development becomes essential. Nissan, for example, has decided to have its own dealer channel for the Datsun Go small car in India.
No price points, only value points
Any discourse on price being excessive or attractive (that is, entry deterrent or entry supportive) would not be of relevance without considering the above four principles. To recapture, firstly, any product or service initiative must be a well-made holistic offering of all the functions of a corporation. Secondly, the product or service well timed to be ahead of competition and capture the imagination of the users. Thirdly, the style and substance of a product or a service must complement each other, in terms of specifications, performance, functionality and experience. Fourthly, there must be supportive and well tuned ecosystems that enable a home for the product or service, both at the company delivery end and at the customer usage end. The levels at which these four principles are established, in conjunction with the pricing levels, determine value points, constituting the essential fifth principle. As Nano embarks on a new journey, the discourse on price points would need to be rechanneled into an appreciation of the value points.
India, a qualifying path in itself
The author believes that there is no need to reposition Nano in Indonesia or a European country and then import the concept into India. No doubt, some of the important products of Japanese car majors have been first launched in Indonesia and brought to India subsequently. No such product, however, rode on the Indonesian success story as a qualifier for entry and ramp-up in India. There are opportunities and challenges in ‘direct to India’ as well as “ to India through Indonesia’ options, however. Indonesia (or, for that matter Malaysia) being a small homogenous country provides a steady feedback to perfect a product. India, which is heterogeneous in states and preferences, on the other hand challenges designers and manufacturers with varied demands and requirements.
Gritty designers and manufacturers believe that if they succeed in India they can succeed anywhere else in the world. There has been no better example of succeeding in India than the Tata group itself with its constituent firms, not in the least Tata Motors as its corporate crown jewel. And, notwithstanding the faltered experience of Nano, there is no reason why Tata Motors should explore other emerging markets as a path to a win in India. The five principles of this blog post should be a solid foundation for Nano to conquer the world with India as its hub. All believers in Indian innovation would look forward to multi-functional excellence at Tata Motors, not in the least technical and marketing brilliance matching up to each other!
Posted by Dr CB Rao on December 1, 2013