Un-parking of Tata Nano Car: From Parking Spaces to Electric Mobility!

Every time one travels in the crowded traffic on the Indian roads one cannot but notice the sight of small families (husband and wife with their two children) navigating dangerously. Rattan Tata’s vision of providing such families a safe, comfortable and economical transportation mode in terms of Tata Nano car has unfortunately translated itself into a muted reality. The failure of Tata Nano to fulfil the dream is seen by the company as a technical and marketing issue. As a result there have been sincere and consistent efforts to upgrade the car and also reposition it as a vehicle for the young Generation Next. These moves have also not set the sales graph soaring. The changes made indeed are significant given the fact that Nano with its micro-compact form factor is already an engineering marvel.

The new 2015 Nano GenX car comes with an expanded product line up, covering three manual and two automated transmission variants. Apart from cosmetic changes like improved bumpers and smoked headlamps, the range comes with two key enhancements: automated manual transmission (with enhanced fuel economy) and hatchback opening for accessible boot space. At a higher ex-showroom price of Rs 215,000 to Rs 300,000, Nano car is now positioned as a car for the well-to-do young people, a major departure from the original positioning as the world’s lowest priced small car (at Rs 100,000) for the needy. Clearly, the repositioning of Nano as a peppy car for the college going students and young executives is underway. That leaves the fans of Nano’s original concept as a unique affordable car for the bottom of the income pyramid quite disappointed.

Space-constrained

Indian transportation scenario is woefully space constrained. India’s population density per kilometre of metalled road is one of the highest in the world even as the per capita vehicle ownership is one of the lowest in the world (200 million registered motor vehicles, 5 million kilometre roads, and 1.2 billion population). The car density per kilometre of metalled roads at 40,000 (approximately) is also one of the highest. To compound the misery, annually 22 million vehicles are being manufactured for use in Indian roads, aggravating the problem beyond imagination. Most metros and upcoming cities suffer from hours of traffic gridlocks. Habitats are built with inadequate parking space. Even modern day offices have poor parking space. A study of office development shows that for every 100 employees in an office only around 10 car parking slots and around 40 two wheeler parking slots are likely to be available. The situation in shopping districts is no better; a 100 store shopping mall (with a multiplex additionally thrown in) or a hi-street of retail and pavement shopping, each of which sees 5000 shoppers daily has no more than 300 car parking slots and strangely just the same number of two wheeler parking slots!

The fact that approximately 77 percent of the output of 22 million units of automobiles in India is contributed by two wheelers indicates the tremendous need for mobility and also the attractive potential for switch to passenger car mode (right now, 15 percent of the output at 3 million units is in passenger car segment).  The Indian automobile industry is the sixth largest in the world and is poised to grow to be the third largest in the world by 2020. The relentless march of automobile congestion on Indian roads is likely to only intensify in future. While part of this may be mitigated by greater expansion in rural markets (where practically no roads exist) the inevitability of an overall space constrained transportation scenario in a growth oriented India is easy to imagine. The challenge for Tata Motors is whether this represents an opportunity but only with reference to other larger cars and countless two wheelers on the roads. No extent of technical upgradation or market repositioning would help Nano achieve its full potential for two reasons: (a) it is optimally developed already for the purpose and (b) the optionality of Nano is parking space related and not specification related.

Logistics challenge

As mentioned earlier, Nano has been innovatively designed vis-à-vis contemporary small cars and appropriately positioned in the huge potential market space. The challenge in driving up Nano sales to its full potential is neither a product nor market challenge, therefore. It is simply a logistics challenge that is two fold: (a) identifying target users who have adequate parking space but need to be weaned to Nano concept and (b) reaching out to natural Nano customers and finding a parking space for them. This strategy has to be city and habitat specific. If Tata Motors is serious about realizing the full potential of Nano nothing short of a user-parking census would be required. Depending on the resources the company is willing to commit, the project could be taken up as a regional project or a national project.

In this Nano paradigm, Tata Motors may find collaborative stakeholders who may seem unlikely collaborators at the first go. Real estate developers are the first stakeholder group. Tata Motors as an entity, and Tata Group as a whole, may carry out some introspection in this regard. Tata is a major player in the real estate sector covering both luxury and affordable home sectors (the latter with Tata Value Homes). There is no evidence at all that Tata Motors has any coordinated strategy to link up with Tata Value Homes whose customers are also likely to be Nano customers. Similarly, coordination with high-rise developers and gated community developers as well as urban planners in each city would develop pathways to identify customer groups who would have usage overlaps.  It is necessary for Tata Motors to deploy such logistics analytics to map out the workable market.

Value propositions

Once the seriously inclined target customer pools are identified, the next challenge would be to develop value propositions that would make them the buyers of Nano cars. While the high fuel economy of 26 kmpl is, in itself, a major value proposition, more relevant and customised value propositions would be needed. Tata Motors may tie up with Tata Value Homes to offer Nano cars instead of cash discounts. With other developers more arm’s length promotional deals can be considered. There could be other options like reducing lifecycle ownership through subsidized sales, mobile dealer and servicing units, especially near target communities, bundled offers with other cars and assured buybacks. Nano may also be positioned as a call-taxi, specially customized for lady drivers and lady customers with GPS tracking and other safety features.

Tata Nano is one of the most complex consummate product-market challenges ever borne. An elegant design and expansive market ought to have made for perpetual value. On the other hand, the product and market failed to discover even the basic value. Nano’s issue and the discussion in this blog post on rediscovering the potential point to an immutable but underexploited law of marketing that some products are not just products but are fundamental concepts. Xerox copying, Kodak film and Sony Walkman of yesteryears and Apple iPad, iPhone and Watch of current times are such concepts. Nano car is also nothing less than that. It is unfortunate that its introduction as any other car erased the value of the fundamentally differentiated concept of what Nano would have been. It is not too late, however.

Electric mobility

Nano’s future does not merely lie in rediscovering its potential as discussed herein. It would lie in taking it to the next logical technological horizon, which is its transformation into an electric car. Nano, in terms of its lightweight and cute-looking design is an ideal platform for conversion into an electric car. Nano Electric would be an ideal concept in terms of environmental sensitivity and lifestyle complementarity. The stakeholders discussed in this blog post would be more than delighted to tie up with Tata Motors to provide exclusive charging points and parking spaces to Tata Nano. Even the urban planners and city space developers would be happy to provide exclusive and preferential parking lots in public spaces for Nano Electric.

Tata Motors could perch Nano motors as an electric self-driving car in this quest for newer technological horizons. Tata should forge a multi-entity collaboration with firms committed to clean transportation such as Google and Tesla to take Nano to the next higher level. Philosophically, some products need not be products of individual firms adding numbers to their annual income statements. They have an amazing potential to evolve as global heritage products, transforming the way certain conventional activities are performed. Tata Motors can continue to treat Nano as a unique product in its large portfolio or release it for a futuristic global evolution. Nano could be a perfect example of a product concept innovated in India, designed, developed and manufactured in India and scaled up and transformed for an astounding global sweep!

Posted by Dr CB Rao on June 20, 2015       

 

Common Production and Dual Branding or Design and Manufacturing Innovation: Multiple Approaches for the Indian Automobile Industry

Something unique is happening in the Indian automobile industry. Renault Nissan Automotive India Pvt Ltd, which has a major presence in India with a large manufacturing plant in Chennai and an all-India marketing presence, is implementing a unique business model. Cars and utility vehicles developed and supported with components from Renault and Nissan global network are manufactured in Renault Nissan state-of-the-art manufacturing plant in Chennai and are sold under different brands through Renault and Nissan marketing networks, each product being offered with minor specification variations. Nissan Micra small car is offered as Renault Pulse hatchback, Nissan Sunny sedan is offered as Renault Scala upscale sedan and Renault Duster SUV will soon be offered as Nissan Nuv. Nissan Evalia utility vehicle is being launched as Style by their joint venture partner, Ashok Leyland.

Common product and dual branding in a homogenous market is not uncommon in other industries such as electronics and FMCG but is certainly a new feature in the automobile industry. That India is home to this experiment through Renault and Nissan is a matter of interest and satisfaction to the observers of the Indian automobile industry. The industry has been witness to shared marketing (Tata and Fiat), shared components and aggregates (Maruti Suzuki and Fiat) but the example of one company marketing a common product with minor modifications as two products is unique. This clearly is different from different marketers sourcing the same product for sale as different products, a feature common in the branded generics market of the pharmaceutical industry of India, and also in the branded white goods and electronics industries of India. Renault Nissan unique business model certainly necessitates greater examination of the business model of common production and dual branding.

Benefits of scale

The crux of sustainability in any industry is scale. Scale is of even greater importance in the automobile industry which requires lakhs, if not millions, of product runs to recover the costs of machine tools and dies, especially those related to high technology components and systems such as engines and transmission boxes and stylistic parts such as body panels. While sharing of components across the globe is commonplace in the automobile industry, setting up plants in specific countries is a high cost endeavor, requiring country specific strategies. Renault Nissan, for example, is said to have earmarked Rs 4500 crore in India (over 7 years) for its 200,000 capacity plant set in an area of 640 acres. Most of the production (almost 80 percent) is currently heading for exports. Aiming at a market share of 10 percent means that the company would need further capacity hikes and investments to meet a potential 800,000 capacity mark.

Having common design platforms and common manufacturing infrastructure enables Renault Nissan as a unified company, and also as two different companies, Nissan of Japan and Renault of France, reap significant advantages in a volume constrained and competition intensive country like India. As a result, Nissan and Renault have been able to sell about 40,000 cars each in 2012 in the domestic market while having a common production base of 80,000 cars. It is evident that this strategy provides economies of scale. Potentially, this strategy can be utilized by Tata Motors in respect of Jaguar-Land Rover up-market model range,  although the product overlap is unlikely to be anywhere near that of Renault Nissan. This brings us to the question of whether common production and dual branding should cover non-overlapping, partially overlapping or fully overlapping product portfolio. In other words, should economies of scale be accompanied by economies of scope?

Options of scope

Given that most global car companies are full line producers, the true economies of scope accrue when both the brands offer the full portfolio. In this approach, differentiation becomes tenuous and requires ingenious solutions. Renault Nissan has sought to adopt a strategy of minor upgrades serving as differentiators even as both companies offer the same product platforms. Sunny car of Nissan is upgraded, for example, as Scala sedan of Renault with a minor luxury touch. Any strategy of splitting the product range, for example small cars and sedans with Nissan and luxury vehicles and SUVs with Renault would not provide the same level of economies of scale and scope, possibly according to Renault Nissan. There are, of course, arguments for and against this hypothesis, again based on the experiences of the Indian automobile industry.    

Marketing focus could provide an alternative view.  The experience of Maruti Suzuki has proved that it is possible to be a mass producer of small cars and A, B and C segment sedans. The experience of Toyota Kirloskar has proved that it should be possible to touch a sale of 100,000 units per annum just on the basis of a well designed utility vehicle, Innova. There is, therefore, the possibility that Renault and Nissan could adopt completely different marketing foci, and still derive the economies of scope at the plant level. Potentially, the reintroduction of Datsun brand by Renault Nissan could help in such differentiation. In a sense, it could be seen as existence of two companies of non-overlapping product portfolios in one company. Potentially, this could be seen as a choice between maximizing production economies (common full line product portfolio) versus maximizing marketing economies (split product portfolio).

Design, the integrator cum differentiator

If the possibilities of economies of scale and scope have to be combined, only design offers some significant potential. There are two considerations of design that have promoted the trend of exclusivity amongst the diverse car makers. The first one is the proprietary nature of designs which is prompted by business considerations. The second one is customized nature of designs which is aimed at performance optimization. The first barrier can be overcome by cross-licensing of technologies and sub-products, a trend that is widely seen in the electronics industry, and could be emulated by the automobile industry. The second barrier requires creativity of design with design platforms that are applicable not just for one model but more for a small group of contiguous models. This means that a 1500 cc engine in naturally aspirated, turbocharged and turbocharged-intercooled options should power three distinct car models which require power of 100 PS, 130 PS and 160 PS and torque of say, 140 NM, 200 NM and 260 NM. While diesel engine and heat recovery and recharging technologies make the paradigm within grasp in respect of engines, the challenges could be higher in respect of other vehicle systems, but not impossible.

The first of the challenges pertains to the chassis. A typical ladder type chassis provides maximum flexibility to change wheel base, front track, rear track and width while a typical monocoque in situ welded chassis offers the most inflexibility as every curve and anchor point is preformed.  The new trend of hydro-formed chassis could offer a mid-point. If the designers keep in perspective that typical length of automobiles in A, B and C segments would range between 4000 and 4600 mm and width would range between 1400 and 1600 mm, and the length in B, C and D segments would range between 4400 and 4800 mm and width would range between 1600 and 1800 mm, it would be possible to design and develop chassis that are trended out of certain common profiles.

The second of the challenge pertains to ensuring structural strength and overall form factors appropriate to different segments. The consumer acceptance of “family look” across the full portfolio (as in the case of Audi Q3, Q5 and Q7) favors design exponents to be creative and effective with flexible C Post and other designs. Development of flexible stamping systems has enabled the Japanese automobile firms develop panels and stampings of different shapes, thicknesses and strengths with efficiency. With the greater spread of aluminum as a material for automobile manufacture, greater flexibility could be achieved in this domain. As technologies for cross-metal welding develop in future, the possibilities could be immense.  

The third of the challenges pertains to design of flexible transmission, suspension, safety and steering systems. Probably, this would be one area where compulsions of customization would override the benefits of design flexibility, as these systems have to be matched finely with engine power and torque profiles, segment ride and safety criteria and traffic navigation conditions. This rules out, for example, use of a 5 speed manual box across all models. Customization of transmission systems, in fact, enhances engine performance and overall vehicle performance. Fortunately, manufacture of these systems has become such a specialized manufacture that judicious resort to in-sourcing of such specialized systems provides economies of scale and scope to designers and manufacturers.

The fourth of the challenges is one of designing interiors such as seats, lights and trim as well as vehicle electronics. These are typically outsourced completely by vehicle manufacturers although the designs have to dovetail with vehicle profiles. The availability of modern and flexible molding technologies and clever packaging would help such component suppliers become scale and scope efficient. The challenge here is probably high as the vehicle designers frequently seek “product refreshes” which typically involve exterior and interior trim and lighting systems.  The elevation of the component industry to mastering high scale and scope is a challenge by itself, regarding which enough attention has not been paid, at least in the Indian automobile industry. The relatively small and medium scale of evolution of the component supply industry in India has been a kind of structural limitation in the past but need not be so now with the increasing volumes of end-products.

Multiple approaches

While Renault Nissan business model of common production and dual branding is an innovative way of reaping economies of scale, there is a need for more involved and design driven approaches to combine design customization and manufacturing flexibility to ensure economies of scale and scope that are structurally internal to the firms and the industry, rather than dependent on market branding. Firms could also pursue more flexible and collaborative strategies of sharing internal systems without compromising the overall differentiation and competitiveness. Collaborative ownership and alliances together with innovative design and manufacturing could help the Indian automobile industry achieve sustainable economies of scale and scope, and become globally competitive.  

Posted by Dr CB Rao on January 13, 2013              

      

Tata Nano Technology Marvel: The Need for Marketing Muscle

When Ratan Tata set out on a mission to have Tata Motors design and manufacture the world’s smallest four door micro car with a capacity to seat comfortably a family of five adults at a price of INR 100,000 (USD 2000 approximately) which is less than half of the price of India’s ruling small car, Maruti Suzuki 800, there was disbelief. However, when Nano was finally unveiled in the 2008 AutoExpo, its successful development was welcomed with rapturous applause. And, when it could not be manufactured in the originally envisaged green-field plant at Singur there was disappointment all round  that one of the best indigenous industrial marvels of India was being stymied. Well-wishers followed Nano’s manufacturing journey from Singur in West Bengal to Sanand in Gujarat and appreciated Ratan Tata’s commitment and gumption to commercialize Nano despite the multitude of challenges.

Post launch, however, Nano car did not exactly set the Indian car market afire. It was received with a rather tepid response, and the initial glitches did not help the car either in its image. Given that the pricing was attractive and the car was cute and spacious the inability of Nano to translate the consumer and corporate expectations into robust market demand and sales is intriguing. Nano’s maximum monthly sales has not exceeded 10,000 units while the sales have languished below the 1,000 units per month for most months since its launch in 2008. This compares with market leading sales of Maruti Suzuki’s  Alto sub-compact car at over 35,000 units per month.  In fact, there would be no comparison of a new product that had, or probably would have, its performance-price equation so favorable for the consumer.  It is somewhat strange that management schools have not yet thought it fit to analyze Tata Nano from a management perspective. This blog post seeks to fill a vital gap in this respect, hoping also to throw some useful pointers to make Nano a mega success, a feat that the car, Tata Motors and Ratan Tata richly deserve.

‘Design to demand’ variance

The primary reason for Nano’s failure relative to its potential can be traced to the huge variance between the concept that triggered its design genesis and the platform on which it was eventually positioned in the marketplace. The genesis of Nano can be traced to Ratan’s desire to offer an affordable and safe car for the typical Indian small family of a couple and two or three children, which otherwise travels riskily on a two-seater two wheeler. Given that a high end two wheeler costs INR 70,000, Nano as a five seater, four door car at INR 100,000, with all its features, had an unbeatable value proposition. Given that India absorbs each year 20,000,000 two wheelers the demand potential for Nano even on the basis of conversion of only 10 percent of two wheeler buyers into Nano buyers would have been huge. Nano would have easily become the largest selling car in the Indian car market had events gone right for the car, several of them in the management’s own control.

This potential has not been realized mainly because the company fought shy of converting its design inspiration into a marketing value proposition. Either because of the Tatas’ corporate ethic of not directly attacking competitors or because of casual hope that Nano would have its own natural demand pull,  the company never had an aggressive marketing campaign that directly appealed to the Indian small family, especially the young family, on a platform of safety and security. The dilemma for the Tatas would have been whether such a campaign would imply that its co-industrialists market two-wheelers as unsafe family transportation vehicles or that the India traffic system turns a blind eye to the overloaded Indian two-wheelers on the road. Independent of such conundrums, the important lesson for corporations from the Nano experience is that the original design genesis and the ultimate marketing platform must have a clear nexus and alignment. The other lesson is that marketing must rise above the paradoxes to deliver a clear product proposition to the consumer, without fear or favor, and without prejudice or bias.

Gross and subtle, Mind and heart

Whenever the design inspiration for a new product is extraordinary and out of the box, even if it is seemingly explicit, the challenge for the marketer increases manifold. Successful companies have focused time, effort and cost to market and institutionalize new concepts in the consumer mind. A classic example is that of Samsung launching a massive campaign for its large smart phone Galaxy Note as a phone cum tablet, ‘phablet’, with the unique proposition of a stylus to write and sketch. The company did not think that it was distorting its own smart phone and tablet markets that were growing exceedingly well under the Galaxy umbrella brand, nor did it think that it was cannibalizing its own smart phones or tablets. The power of unique technological concepts needs to be demonstrated to the marketplace, also positioned in the minds of the consumers and instilled in in a gross manner. In respect of Nano, the technological innovation of the product should have been demonstrated with unceasing and high-force campaigns rather than sporadic and low profile advertisements. Mind space can be secured only through powerful, explicit and rational delineation in respect of technological factors.

Gross campaigns need to be reinforced with subtle messaging too, particularly when the product really needs to change the segment proportion within the overall market, and wrest the overall market share in competition with a different group of products made by competition. Nano was indeed faced with the dilemma of challenging the two wheeler segment with a superior value proposition of safety of a micro four wheeler. Gross messaging would have not served the purpose, apart from possibly being a strict no-no for the Tatas corporate competitive behavioral philosophy. Emotional subtlety that appeals to the heart is the key to such messaging. Here again, we have the example of Cadbury positioning its milk chocolates as a ‘sweet’ for homely and auspicious occasions in competition with traditional Indian sweets. For the Indian small family, the concept of caring for the life partner and protecting the kids through the small car as opposed to leaving them to the vagaries of environment and turbulence of road traffic in a two wheeler would have been highly effective, for example. Equally, in a society where owning a car is considered to be a symbol of having arrived to a noticeable stage in life, owning a Nano car at the very early start of the career, independent of the relative affluence, would be an impressive value proposition. Subtlety impacts heart positively, which in turns influences the mind share of the buyer.

Value qualifiers

All marketing literature talks about value for the consumer being a function of price and features of a product. In respect of Nano, technology speaks for itself in terms of compact exterior and spacious interior on one hand and the power to drive and fuel to conserve on the other. Any additional value drivers must appeal to both the mind and heart, if the above gross and subtle messaging is accepted. Electronic braking system and front and side air bags would reinforce the safety tag. Experimental evidence of crash test safety would reinforce the safety image even further. An ability to upgrade Nano to a Manza sedan as the family evolves in life, through Tata exchange and finance schemes, could be another value driver. It would be important for the company to first develop a list of various additional features that could add value as a comprehensive list of value qualifiers, and then select value drivers which are appropriate to different groups of customers. For example, a 2 DIN music system will be a stronger value add for a couple while a safety kit as outlined above will probably be a more welcome value add for a couple with babies or kids.

The fundamental value creation, however, starts at the dealer point. The low price of Nano means that the turnover on Nano sales and service would be the lowest for the typical dealership in the Tata family of vehicles. This problem is further compounded by the initial strategy of having a combined dealership covering all vehicles, from cars and utility vehicles to trucks and buses. The implication for Tata Motors as also to all other automobile manufacturers in India is that dealership can no longer be considered just a point of sale. The infrastructure and organization for automobile dealership would need to extend vertically along the product value chain as a continuum of design, development, manufacture, distribution, sales and service. Ideally, Tata Motors would need to have completely different dealerships for cars and utility vehicles on one hand and commercial vehicles (light, medium and heavy trucks and buses) on the other. In each case, the product should receive the same level of care; for example a Nano micro car should receive the same attention as a high end Aria crossover and an Ace mini-truck the same attention as a high end Prima luxury truck. Value qualification by dealership should be an important component of Nano resurgence strategy.

From breakeven to breakthrough

Tata Motors which has received acclaim for being the pioneer in indigenous development of passenger cars and utility vehicles has been losing ground in that segment in recent years. This has been admitted by Ratan Tata himself in the annual shareholders meeting of Tata Motors.  The appointment of Karl Slym, a GM veteran who had a successful stint in GM India, as the Managing Director of Tata Motors has been indicative of the resolve of Ratan Tata to turn around Tata Motors’ fortunes in the passenger car sector. Hopefully, Tata Nano will be a beneficiary of his attention, given that Tata Nano car initiative is at crossroads. The car has certainly seen a revving up of sales in recent months.  However, even with the recently achieved monthly high of 10,000 Nano cars, the production level is below the breakeven point of 150,000 Nanos per annum. Breakeven should not be a concern, however. To utilize the current capacity of 250,000 Nanos per annum and the potential capacity of 400,000 Nanos at the 75 acre site which also has an adjunct component park, Tata Motors requires breakthrough strategies.

Tata Nano is more than just one another passenger car model. It represents the passion and creativity of the Indian Business and the innovation and skill of the Indian engineers to develop and manufacture a passenger car with a feature and cost profile that no other automobile company, global or Indian could ever conceive of and commercialize. More than the success of Nano as a car model of Tatas, far more is at stake for the Tata Group as well as the Indian industry. The author of the blog post hopes that Tata Motors would persevere and make an enduring success of Tata Nano based on an effective strategic format. The announcement by Tata Motors that it would take Tata Nano to the US at an appropriate price tag is indicative of the resolve of the management to take up the challenge by scaling even higher bars. As this blog post brings out, an integrated techno-marketing strategy, customized to the marketplace, is required to reposition Nano car for accelerated growth in India and also position it for successful entry into advanced countries.   

Posted by Dr CB Rao on October 24, 2012